Hanesbrands, Inc.
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 29, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
001-32891
Hanesbrands Inc.
(Exact name of registrant as
specified in its charter)
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Maryland
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20-3552316
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(State of
incorporation)
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(I.R.S. employer identification
no.)
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1000 East Hanes Mill Road
Winston-Salem, North Carolina
(Address of principal
executive office)
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27105
(Zip
code)
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(336) 519-4400
(Registrants telephone
number including area code)
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, par value $0.01 per share and related
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No
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Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference into
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 29, 2007, the aggregate market value of the
registrants common stock held by non-affiliates was
approximately $2,181,556,448 (based on the closing price of the
common stock of $27.03 per share on that date, as reported on
the New York Stock Exchange and, for purposes of this
computation only, the assumption that all of the
registrants directors and executive officers are
affiliates).
As of February 1, 2008, there were 95,232,478 shares
of the registrants common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this
Form 10-K
incorporates by reference to portions of the registrants
proxy statement for its 2008 annual meeting of stockholders.
TABLE OF
CONTENTS
Trademarks,
Trade Names and Service Marks
We own or have rights to use the trademarks, service marks and
trade names that we use in conjunction with the operation of our
business. Some of the more important trademarks that we own or
have rights to use that appear in this Annual Report on
Form 10-K
include the Hanes, Champion, Playtex, Bali, Just My Size,
barely there, Wonderbra, C9 by Champion, Leggs,
Outer Banks, Duofold and Stedman marks, which may
be registered in the United States and other jurisdictions. We
do not own any trademark, trade name or service mark of any
other company appearing in this Annual Report on
Form 10-K.
FORWARD-LOOKING
STATEMENTS
This Annual Report on
Form 10-K
includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include all statements that do not
relate solely to historical or current facts, and can generally
be identified by the use of words such as may,
believe, will, expect,
project, estimate, intend,
anticipate, plan, continue
or similar expressions. In particular, information appearing
under Business, Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations includes
forward-looking statements. Forward-looking statements
inherently involve many risks and uncertainties that could cause
actual results to differ materially from those projected in
these statements. Where, in any forward-looking statement, we
express an expectation or belief as to future results or events,
such expectation or belief is based on the current plans and
expectations of our management and expressed in good faith and
believed to have a reasonable basis, but there can be no
assurance that the expectation or belief will result or be
achieved or accomplished. The following include some but not all
of the factors that could cause actual results or events to
differ materially from those anticipated:
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our ability to migrate our production and manufacturing
operations to lower-cost locations around the world;
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risks associated with our foreign operations or foreign supply
sources, such as disruption of markets, changes in import and
export laws, currency restrictions and currency exchange rate
fluctuations;
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the impact of economic and business conditions and industry
trends in the countries in which we operate our supply chain;
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the highly competitive and evolving nature of the industry in
which we compete;
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our ability to effectively manage our inventory and reduce
inventory reserves;
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our ability to keep pace with changing consumer preferences;
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loss of or reduction in sales to any of our top customers,
especially Wal-Mart;
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financial difficulties experienced by any of our top customers;
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failure by us to protect against dramatic changes in the
volatile market price of cotton, the primary material used in
the manufacture of our products;
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the impact of increases in prices of other materials used in our
products, such as dyes and chemicals, and increases in other
costs, such as fuel, energy and utility costs;
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costs and adverse publicity arising from violations of labor or
environmental laws by us or any of our third-party manufacturers;
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our ability to attract and retain key personnel;
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our debt and debt service requirements that restrict our
operating and financial flexibility, and impose interest and
financing costs;
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the risk of inflation or deflation;
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consumer disposable income and spending levels, including the
availability and amount of individual consumer debt;
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retailer consolidation and other changes in the apparel
essentials industry;
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future financial performance, including availability, terms and
deployment of capital;
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new litigation or developments in existing litigation;
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our ability to comply with environmental and occupational health
and safety laws and regulations;
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general economic conditions; and
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possible terrorists attacks and ongoing military action in the
Middle East and other parts of the world.
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There may be other factors that may cause our actual results to
differ materially from the forward-looking statements. Our
actual results, performance or achievements could differ
materially from those expressed in, or implied by, the
forward-looking statements. We can give no assurances that any
of the events anticipated by the forward-looking statements will
occur or, if any of them does, what impact they will have on our
results of operations and financial condition. You should
carefully read the factors described in the Risk
Factors section of this Annual Report on
Form 10-K
for a description of certain risks that could, among other
things, cause our actual results to differ from these
forward-looking statements.
All forward-looking statements speak only as of the date of this
Annual Report on
Form 10-K
and are expressly qualified in their entirety by the cautionary
statements included in this Annual Report on
Form 10-K.
We undertake no obligation to update or revise forward-looking
statements that may be made to reflect events or circumstances
that arise after the date made or to reflect the occurrence of
unanticipated events, other than as required by law.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You can inspect, read and
copy these reports, proxy statements and other information at
the public reference facilities the SEC maintains at
100 F Street, N.E., Washington, D.C. 20549.
We make available free of charge at www.hanesbrands.com (in the
Investors section) copies of materials we file with,
or furnish to, the SEC. You can also obtain copies of these
materials at prescribed rates by writing to the Public Reference
Section of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. You can obtain information on the
operation of the public reference facilities by calling the SEC
at
1-800-SEC-0330.
The SEC also maintains a website at www.sec.gov that makes
available reports, proxy statements and other information
regarding issuers that file electronically with it. By referring
to our website, www.hanesbrands.com, we do not incorporate our
website or its contents into this Annual Report on
Form 10-K.
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PART I
General
We are a consumer goods company with a portfolio of leading
apparel brands, including Hanes, Champion, Playtex, Bali,
Just My Size, barely there and Wonderbra. We design,
manufacture, source and sell a broad range of apparel essentials
such as t-shirts, bras, panties, mens underwear,
kids underwear, socks, hosiery, casualwear and activewear.
Our products are sold through multiple distribution channels.
During the year ended December 29, 2007, approximately 46%
of our net sales were to mass merchants, 19% were to national
chains and department stores, 8% were direct to consumers, 9%
were in our International segment and 18% were to other retail
channels such as embellishers, specialty retailers, warehouse
clubs and sporting goods stores. In addition to designing and
marketing apparel essentials, we have a long history of
operating a global supply chain that incorporates a mix of
self-manufacturing, third-party contractors and third-party
sourcing.
The apparel essentials segment of the apparel industry is
characterized by frequently replenished items, such as t-shirts,
bras, panties, mens underwear, kids underwear, socks
and hosiery. Growth and sales in the apparel essentials industry
are not primarily driven by fashion, in contrast to other areas
of the broader apparel industry. Rather, we focus on the core
attributes of comfort, fit and value, while remaining current
with regard to consumer trends. The majority of our core styles
continue from year to year, with variations only in color,
fabric or design details. We continue to invest in our largest
and strongest brands to achieve our long-term growth goals.
Our operations are managed and reported in five operating
segments: Innerwear, Outerwear, Hosiery, International and
Other. The following table summarizes our operating segments by
category:
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Segment
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Primary Products
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Primary Brands
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Innerwear
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Intimate apparel, such as bras, panties and bodywear
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Hanes, Playtex, Bali, barely there, Just My Size, Wonderbra,
Duofold
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Mens underwear and kids underwear
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Hanes, Champion, Polo Ralph Lauren*
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Socks
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Hanes, Champion
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Outerwear
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Activewear, such as performance t-shirts and shorts
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Hanes, Champion, Just My Size
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Casualwear, such as t-shirts, fleece and sport shirts
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Hanes, Just My Size, Outer Banks, Hanes Beefy-T
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Hosiery
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Hosiery
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Leggs, Hanes, Just My Size, Donna Karan,* DKNY*
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International
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Activewear, mens underwear, kids underwear, intimate
apparel, socks, hosiery and casualwear
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Hanes, Wonderbra,** Playtex,** Champion, Rinbros, Bali,
Stedman
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Other
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Nonfinished products, including fabric and certain other
materials
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Not applicable
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Brand used under a license agreement. |
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As a result of the February 2006 sale of the European branded
apparel business of Sara Lee Corporation, or Sara
Lee, we are not permitted to sell this brand in the member
states of the European Union, or the EU, several
other European countries and South Africa. |
Our brands have a strong heritage in the apparel essentials
industry. According to The NPD Group/Consumer Tracking Service,
or NPD, our brands hold either the number one or
number two U.S. market position by sales in most product
categories in which we compete, on a rolling year-end basis as
of December 31, 2007. According to a 2007 survey of
consumer brand awareness by Womens Wear Daily, Hanes
is the most recognized apparel and accessory brand among
women in the United States. According to
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Millward Brown Market Research, Hanes is found in over
85% of the United States households that have purchased
mens or womens casual clothing or underwear in the
12-month
period ended December 31, 2007.
According to NPD, we are the largest seller of apparel
essentials in the United States as measured by sales on a
rolling year-end basis as of December 31, 2007. We sell our
products primarily through large, high-volume retailers,
including mass merchants, department stores and national chains.
We have met the demands of our customers by developing
vertically integrated operations and an extensive network of
owned facilities and third-party manufacturers over a broad
geographic footprint. We have strong, long-term relationships
with our top customers, including relationships of more than ten
years with each of our top ten customers. The size and
operational scale of the high-volume retailers with which we do
business require extensive category and product knowledge and
specialized services regarding the quantity, quality and
planning of orders. We align significant parts of our
organization with corresponding parts of our customers,
organizing into teams that sell to and service our customers
across a range of functional areas, such as demand planning,
replenishment and logistics. We also have customer-specific
programs such as the C9 by Champion products marketed and
sold through Target stores.
Our ability to react to changing customer needs and industry
trends will continue to be key to our success. Our design,
research and product development teams, in partnership with our
marketing teams, drive our efforts to bring innovations to
market. We intend to leverage our insights into consumer demand
in the apparel essentials industry to develop new products
within our existing lines and to modify our existing core
products in ways that make them more appealing, addressing
changing customer needs and industry trends. Examples of our
recent innovations include:
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Hanes All-Over Comfort Bra, which features stay-put
straps that dont slip, cushioned wires that dont
poke and a tag-free back (2006).
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Hanes Comfort Soft T-shirt (2007).
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Bali Passion for Comfort bra, designed to be the ultimate
comfort bra, features a silky smooth lining for a luxurious feel
against the body (2007).
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Bali Concealers bras, the first and only bra with
revolutionary concealing petals for complete modesty (2008).
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Hanes no ride up panties (2008).
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We were spun off from Sara Lee on September 5, 2006. In
connection with the spin off, Sara Lee contributed its branded
apparel Americas and Asia business to us and distributed all of
the outstanding shares of our common stock to its stockholders
on a pro rata basis. As a result of the spin off, Sara Lee
ceased to own any equity interest in our company. In this Annual
Report on
Form 10-K,
we describe the businesses contributed to us by Sara Lee in the
spin off as if the contributed businesses were our business for
all historical periods described. References in this Annual
Report on
Form 10-K
to our assets, liabilities, products, businesses or activities
of our business for periods including or prior to the spin off
are generally intended to refer to the historical assets,
liabilities, products, businesses or activities of the
contributed businesses as the businesses were conducted as part
of Sara Lee and its subsidiaries prior to the spin off. Our
fiscal year ends on the Saturday closest to December 31 and
previously ended on the Saturday closest to June 30. We
refer to the fiscal year ended December 29, 2007 as the
year ended December 29, 2007. A reference to a year ended
on another date is to the fiscal year ended on that date.
We expect to continue the restructuring efforts that we have
undertaken since the spin off from Sara Lee. For example, during
the year ended December 29, 2007, in furtherance of our
efforts to execute our consolidation and globalization strategy,
we approved actions to close 17 manufacturing facilities and
three distribution centers. The implementation of these efforts,
which are designed to improve operating efficiencies and lower
costs, has resulted and is likely to continue to result in
significant costs and savings. As further plans are developed
and approved by management and in some cases our board of
directors, we expect to recognize additional restructuring costs
to eliminate duplicative functions within the organization and
transition a significant portion of our manufacturing capacity
to lower-cost locations. As a result of these efforts, we
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expect to incur approximately $250 million in restructuring
and related charges over the three year period following the
spin off from Sara Lee, approximately half of which is expected
to be noncash. As of December 29, 2007, we have recognized
approximately $116 million in restructuring and related
charges related to these efforts.
Our
Industry
The overall U.S. apparel market and the core categories
critical to our future success will continue to be influenced by
a number of broad-based trends:
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the U.S. population is predicted to increase at a rate of
less than 1% annually, with the rate of increase declining
through 2050, with a continued aging of the population and a
shift in the ethnic mix;
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changing attitudes about fashion, the need for versatility, and
continuing preferences for more casual apparel are expected to
support the strength of basic or classic styles of relaxed
apparel;
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the impact of a continued deflationary environment in our
business and the apparel essentials industry;
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continued increases in body size across all age groups and
genders, and especially among children, will drive demand for
plus-sized apparel; and
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intense competition in the retail industry, the shifting of
formats among major retailers, convenience and value will
continue to be key drivers.
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In addition, we anticipate growth in the apparel essentials
industry will be driven in part by product improvements and
innovations. Improvements in product features, such as stretch
in t-shirts or tagless garment labels, or in increased variety
through new sizes or styles, are expected to enhance consumer
appeal and category demand. Often the innovations and
improvements in our industry are not trend-driven, but are
designed to react to identifiable consumer needs and demands. As
a consequence, the apparel essentials market is characterized by
lower fashion risks compared to other apparel categories.
Our
Brands
Our portfolio of leading brands is designed to address the needs
and wants of various consumer segments across a broad range of
apparel essentials products. Each of our brands has a particular
consumer positioning that distinguishes it from its competitors
and guides its advertising and product development. We discuss
some of our most important brands in more detail below.
Hanes is the largest and most widely recognized brand in
our portfolio. According to a 2007 survey of consumer brand
awareness by Womens Wear Daily, Hanes is the most
recognized apparel and accessory brand among women in the United
States. The Hanes brand covers all of our product
categories, including mens underwear, kids
underwear, bras, panties, socks, t-shirts, fleece and sheer
hosiery. Hanes stands for outstanding comfort, style and
value. According to Millward Brown Market Research, Hanes
is found in over 85% of the United States households that
have purchased mens or womens casual clothing or
underwear in the
12-month
period ended December 31, 2007.
Champion is our second-largest
brand. Specializing in athletic and other performance
apparel, the Champion brand is designed for everyday
athletes. We believe that Champions combination of
comfort, fit and style provides athletes with mobility,
durability and up-to-date styles, all product qualities that are
important in the sale of athletic products. We also distribute
products under the C9 by Champion brand exclusively
through Target stores.
Playtex, the third-largest brand within our portfolio,
offers a line of bras, panties and shapewear, including products
that offer solutions for hard to fit figures. Bali is the
fourth-largest brand within our portfolio. Bali offers a
range of bras, panties and shapewear sold in the department
store channel. Our brand portfolio also includes the following
well-known brands: Leggs, Just My Size,
barely there, Wonderbra, Outer Banks and
Duofold. These brands serve to round out our product
offerings, allowing us to give consumers a variety of options to
meet their diverse needs.
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Our
Segments
Our operations are managed in five operating segments, each of
which is a reportable segment for financial reporting purposes:
Innerwear, Outerwear, Hosiery, International and Other. These
segments are organized principally by product category and
geographic location. For more information about our segments,
see Note 20 to our Consolidated Financial Statements
included in this Annual Report on
Form 10-K.
Innerwear
The Innerwear segment focuses on core apparel essentials, and
consists of products such as womens intimate apparel,
mens underwear, kids underwear, socks, thermals and
sleepwear, marketed under well-known brands that are trusted by
consumers. We are an intimate apparel category leader in the
United States with our Hanes, Playtex,
Bali, Just My Size, barely there and
Wonderbra brands. We are also a leading manufacturer and
marketer of mens underwear and kids underwear under
the Hanes and Champion brand names. We also
produce underwear products under a licensing agreement with Polo
Ralph Lauren. Our net sales for the year ended December 29,
2007 from our Innerwear segment were $2.6 billion,
representing approximately 57% of total segment net sales.
Outerwear
We are a leader in the casualwear and activewear markets through
our Hanes, Champion and Just My Size
brands, where we offer products such as t-shirts and fleece.
Our casualwear lines offer a range of quality, comfortable
clothing for men, women and children marketed under the Hanes
and Just My Size brands. The Just My Size
brand offers casual apparel designed exclusively to meet the
needs of plus-size women. In addition to activewear for men and
women, Champion provides uniforms for athletic programs
and includes an apparel program, C9 by Champion, at
Target stores. We also license our Champion name for
collegiate apparel and footwear. We also supply our t-shirts,
sportshirts and fleece products primarily to wholesalers, who
then resell to screen printers and embellishers through brands
such as Hanes, Champion, and Outer Banks. These
products are sold primarily under the Hanes, Hanes
Beefy-T and Outer Banks brands. Our net sales for the
year ended December 29, 2007 from our Outerwear segment
were $1.2 billion, representing approximately 27% of total
segment net sales.
Hosiery
We are the leading marketer of womens sheer hosiery in the
United States. We compete in the hosiery market by striving to
offer superior values and executing integrated marketing
activities, as well as focusing on the style of our hosiery
products. We market hosiery products under our Hanes,
Leggs and Just My Size brands. Our net sales
for the year ended December 29, 2007 from our Hosiery
segment were $266 million, representing approximately 6% of
total segment net sales. We expect the trend of declining
hosiery sales to continue consistent with the overall decline in
the industry (although the decline has slowed in recent years)
and with shifts in consumer preferences.
International
International includes products that span across the Innerwear,
Outerwear and Hosiery reportable segments and include products
marketed under the Hanes, Champion,
Wonderbra, Playtex, Rinbros, Bali
and Stedman brands. Our net sales in this segment
included sales in Latin America, Asia, Canada and Europe. Japan,
Canada and Mexico are our largest international markets, and we
also have sales offices in India and China. Our net sales for
the year ended December 29, 2007 from our International
segment were $422 million, representing approximately 9% of
total segment net sales.
Other
Our net sales in this segment are comprised of sales of
nonfinished products such as fabric and certain other materials
in the United States and Latin America in order to maintain
asset utilization at certain
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manufacturing facilities. Our net sales for the year ended
December 29, 2007 from our Other segment were
$57 million, representing approximately 1% of total segment
net sales.
Design,
Research and Product Development
At the core of our design, research and product development
capabilities is a team of more than 300 professionals. We have
combined our design, research and development teams into an
integrated group for all of our product categories. A facility
located in Winston-Salem, North Carolina, is the center of our
research, technical design and product development efforts. We
also employ creative design and product development personnel in
our design center in New York City. During the year ended
December 29, 2007, the six months ended December 30,
2006 the year ended July 1, 2006 and the year ended
July 2, 2005, we spent approximately $45 million,
$23 million, $55 million and $51 million,
respectively, on design, research and product development.
Customers
In the year ended December 29, 2007, approximately 90% of
our net sales were to customers in the United States and
approximately 10% were to customers outside the United States.
Domestically, almost 85% of our net sales were wholesale sales
to retailers, 7% were wholesale sales to third-party
embellishers and 8% were direct to consumers. We have
well-established relationships with some of the largest apparel
retailers in the world. Our largest customers are Wal-Mart
Stores, Inc., or Wal-Mart, Target Corporation, or
Target and Kohls Corporation, or
Kohls, accounting for 27%, 14% and 6%,
respectively, of our total sales in the year ended
December 29, 2007. As is common in the apparel essentials
industry, we generally do not have purchase agreements that
obligate our customers, including Wal-Mart, to purchase our
products. However, all of our key customer relationships have
been in place for ten years or more. Wal-Mart and Target are our
only customers with sales that exceed 10% of any individual
segments sales. In our Innerwear segment, Wal-Mart
accounted for 30% of sales and Target accounted for 11% of sales
during the year ended December 29, 2007. In our Outerwear
segment, Wal-Mart accounted for 24% of sales and Target
accounted for 25% of sales during the year ended
December 29, 2007.
Due to their size and operational scale, high-volume retailers
such as Wal-Mart require extensive category and product
knowledge and specialized services regarding the quantity,
quality and timing of product orders. We have organized
multifunctional customer management teams, which has allowed us
to form strategic long-term relationships with these customers
and efficiently focus resources on category, product and service
expertise.
Smaller regional customers attracted to our leading brands and
quality products also represent an important component of our
distribution. Our organizational model provides for an efficient
use of resources that delivers a high level of category and
channel expertise and services to these customers.
Sales to the mass merchant channel accounted for approximately
46% of our net sales in the year ended December 29, 2007.
We sell all of our product categories in this channel primarily
under our Hanes, Just My Size, Playtex and
C9 by Champion brands. Mass merchants feature
high-volume, low-cost sales of basic apparel items along with a
diverse variety of consumer goods products, such as grocery and
drug products and other hard lines, and are characterized by
large retailers, such as Wal-Mart. Wal-Mart, which accounted for
approximately 27% of our net sales during the year ended
December 29, 2007, is our largest mass merchant customer.
Sales to the national chains and department stores channel
accounted for approximately 19% of our net sales during the year
ended December 29, 2007. These retailers target a
higher-income consumer than mass merchants, focus more of their
sales on apparel items rather than other consumer goods such as
grocery and drug products, and are characterized by large
retailers such as Kohls, JC Penney Company, Inc. and Sears
Holdings Corporation. We sell all of our product categories in
this channel. Traditional department stores target higher-income
consumers and carry more high-end, fashion conscious products
than national chains or mass merchants and tend to operate in
higher-income areas and commercial centers. Traditional
department
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stores are characterized by large retailers such as Macys
and Dillards, Inc. We sell products in our intimate
apparel, hosiery and underwear categories through these
department stores.
Sales to the direct to consumer channel accounted for
approximately 8% of our net sales in the year ended
December 29, 2007. We sell our branded products directly to
consumers through our approximately 216 outlet stores, as well
as our catalogs and our web sites operating under the
Hanes, OneHanesPlace, Outer Banks, Just
My Size and Champion names. Our outlet stores are
value-based, offering the consumer a savings of 25% to 40% off
suggested retail prices, and sell first-quality, excess,
post-season, obsolete and slightly imperfect products. Our
catalogs and web sites address the growing direct to consumer
channel that operates in todays 24/7 retail environment,
and we have an active database of approximately three million
consumers receiving our catalogs and emails. Our web sites have
experienced significant growth and we expect this trend to
continue as more consumers embrace this retail shopping channel.
Sales in our International segment represented approximately 9%
of our net sales during the year ended December 29, 2007,
and included sales in Latin America, Asia, Canada and Europe.
Japan, Canada and Mexico are our largest international markets,
and we also have sales offices in India and China. We operate in
several locations in Latin America including Mexico, Puerto
Rico, Argentina, Brazil and Central America. From an export
business perspective, we use distributors to service customers
in the Middle East and Asia, and have a limited presence in
Latin America. The brands that are the primary focus of the
export business include Hanes underwear and Bali,
Playtex, Wonderbra and barely there
intimate apparel. As discussed below, we are not permitted
to sell Wonderbra and Playtex branded products in
the member states of the EU, several other European countries,
and South Africa.
Sales in other channels represented approximately 18% of our net
sales during the year ended December 29, 2007. We sell
t-shirts, golf and sport shirts and fleece sweatshirts to
third-party embellishers primarily under our Hanes,
Hanes Beefy-T and Outer Banks brands. Sales to
third-party embellishers accounted for approximately 7% of our
net sales during the year ended December 29, 2007. We also
sell a significant range of our underwear, activewear and sock
products under the Champion brand to wholesale clubs,
such as Costco, and sporting goods stores, such as The Sports
Authority, Inc. We sell primarily legwear and underwear products
under the Hanes and Leggs brands to food,
drug and variety stores. We sell our branded apparel essentials
products to the U.S. military for sale to servicemen and
servicewomen.
Inventory
Effective inventory management is a key component of our future
success. Because our customers do not purchase our products
under long-term supply contracts, but rather on a purchase order
basis, effective inventory management requires close
coordination with the customer base. We employ various types of
inventory management techniques that include collaborative
forecasting and planning, vendor-managed inventory, key event
management and various forms of replenishment management
processes. We have demand management planners in our customer
management group who work closely with customers to develop
demand forecasts that are passed to the supply chain. We also
have professionals within the customer management group who
coordinate daily with our larger customers to help ensure that
our customers planned inventory levels are in fact
available at their individual retail outlets. Additionally,
within our supply chain organization we have dedicated
professionals that translate the demand forecast into our
inventory strategy and specific production plans. These
individuals work closely with our customer management team to
balance inventory investment/exposure with customer service
targets.
Seasonality
and Other Factors
Our operating results are subject to some variability.
Generally, our diverse range of product offerings helps mitigate
the impact of seasonal changes in demand for certain items.
Sales are typically higher in the last two quarters (July to
December) of each fiscal year. Socks, hosiery and fleece
products generally have higher sales during this period as a
result of cooler weather, back-to-school shopping and holidays.
Sales levels in a period are also impacted by customers
decisions to increase or decrease their inventory levels in
response to anticipated consumer demand. Our customers may
cancel orders, change delivery schedules or change the
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mix of products ordered with minimal notice to us. Our results
of operations are also impacted by fluctuations and volatility
in the price of cotton and the timing of actual spending for our
media, advertising and promotion expenses. Media, advertising
and promotion expenses may vary from period to period during a
year depending on the timing of our advertising campaigns for
retail selling seasons and product introductions. Our costs for
cotton yarn and cotton-based textiles vary based upon the
fluctuating cost of cotton, which is affected by weather,
consumer demand, speculation on the commodities market, the
relative valuations and fluctuations of the currencies of
producer versus consumer countries and other factors that are
generally unpredictable and beyond our control. While we do
enter into short-term supply agreements and hedges in an attempt
to protect our business from the volatility of the market price
of cotton, our business can be affected by dramatic movements in
cotton prices.
Marketing
Our strategy is to bring consumer-driven innovation to market in
a compelling way. Our approach is to build targeted, effective
multimedia advertising and marketing campaigns to increase
awareness of our key brands. Driving growth platforms across
categories is a major element of our strategy as it enables us
to meet key consumer needs and leverage advertising dollars. We
believe that the strength of our consumer insights, our
distinctive brand propositions and our focus on integrated
marketing give us a competitive advantage in the fragmented
apparel marketplace.
In 2007, we launched a number of new advertising and marketing
initiatives:
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We featured Jennifer Love Hewitt in a new television, print and
online advertising campaign that began in March 2007 in support
of the launch of the Hanes All-Over Comfort Bra with
ComfortSoft straps. The campaign includes new television,
print and online ads.
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We launched our latest Look Who advertising campaign
featuring Cuba Gooding Jr. and Michael Jordan in July 2007, in
support of the new Hanes ComfortSoft Collection for Men,
which includes the Hanes ComfortSoft undershirt and
ComfortSoft underwear.
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Also in July 2007, we launched The Hanes ComfortZone
Tour, a mobile marketing initiative focused on making men
comfortable using a mixture of interactive elements to expose
them to the Hanes ComfortSoft undershirts and underwear.
The tour featured a team of brand ambassadors using an array of
interactive games and giveaways to help men experience
ComfortSoft product innovation first hand.
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In November 2007, we launched the first campaign for our
Champion brand since 2003, a national advertising
campaign featuring a new tagline, How You Play. The
campaign which includes print, out-of-home and online
components, is designed to capture the everyday moments of fun
and sport in a series of cool and hip lifestyle images.
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In the Spring of 2007, we launched a new Live
Beautifully campaign for our Bali brand. The print,
television and online ad campaign features Bali bras and panties
from its Passion for Comfort, Seductive Curve and
Cotton Creations lines.
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We launched an innovative and expressive advertising and
marketing campaign called Girl Talk in September
2007 in which confident, everyday women talk about their
breasts, in support of our Playtex 18 Hour and Playtex
Secrets product lines.
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In October 2007, we announced a
10-year
strategic alliance with The Walt Disney Company. Key features of
the alliance include:
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Hanes will be the presenting sponsor of the Rock
n Roller Coaster Starring Aerosmith, one of the most
popular attractions at
Disney-MGM
Studios in Florida.
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Hanes will have a customizable apparel venue in Downtown
Disney at Walt Disney World Resort that will enable guests to
design and personalize their own custom T-shirts and other items.
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Champion will have naming rights for the stadium at
Disneys Wide World of Sports Complex, the nations
premier amateur sports venue. In addition to Champion
Stadium, there will be brand placement and promotional
opportunities throughout the complex.
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We will have in-store promotional and brand building
opportunities at eight ESPN Zone restaurants and stores located
across the country.
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Hanes and Champion will have category exclusivity
for select apparel at Disneyland Resort in Anaheim, Calif., Walt
Disney World Resort and Disneys Wide World of Sports
Complex Stadium, both in Florida, and all eight ESPN Zone stores.
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Our products, including T-shirts and tanks and fleece
sweatshirts, sweatpants, hoodies and other family fleece,
including infant and toddler items, will be co-labeled,
including Disneyland Resort by Hanes, Walt Disney
World by Hanes, Disneys Wide World of Sports
Complex by Champion and ESPN Zone by Champion.
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Distribution
We distribute our products for the U.S. market primarily
from
U.S.-based
company-owned and company-operated distribution centers. As of
December 29, 2007, we distributed products for the U.S.
market from 26 distribution centers, 19 of which were
company-owned or company-operated. International distribution
operations use a combination of third-party logistics providers,
as well as owned and operated distribution operations, to
distribute goods to our various international markets. We are
currently in the process of consolidating several of our
distribution centers, and have reduced the number of
distribution centers from the 48 that we maintained at the time
of the spin off to 41, of which 26 are company-owned or
company-operated. In this process, we approved actions to close
three distribution centers during the year ended
December 29, 2007.
Manufacturing
and Sourcing
During the year ended December 29, 2007, approximately 79%
of our finished goods sold in the United States were
manufactured through a combination of facilities we own and
operate and facilities owned and operated by third-party
contractors who perform some of the steps in the manufacturing
process for us, such as cutting
and/or
sewing. We sourced the remainder of our finished goods from
third-party manufacturers who supply us with finished products
based on our designs. We believe that our balanced approach to
product supply, which relies on a combination of owned,
contracted and sourced manufacturing located across different
geographic regions, increases the efficiency of our operations,
reduces product costs and offers customers a reliable source of
supply.
Finished
Goods That Are Manufactured by Hanesbrands
The manufacturing process for finished goods that we manufacture
begins with raw materials we obtain from third parties. The
principal raw materials in our product categories are cotton and
synthetics. Our costs for cotton yarn and cotton-based textiles
vary based upon the fluctuating and often volatile cost of
cotton, which is affected by, among other factors, weather,
consumer demand, speculation on the commodities market and the
relative valuations and fluctuations of the currencies of
producer versus consumer countries. We attempt to mitigate the
effect of fluctuating raw material costs by entering into
short-term supply agreements that set the price we will pay for
cotton yarn and cotton-based textiles in future periods. We also
enter into hedging contracts on cotton designed to protect us
from severe market fluctuations in the wholesale prices of
cotton. In addition to cotton yarn and cotton-based textiles, we
use thread and trim for product identification, buttons,
zippers, snaps and lace.
Fluctuations in crude oil or petroleum prices may also influence
the prices of items used in our business, such as chemicals,
dyestuffs, polyester yarn and foam. Alternate sources of these
materials and services are readily available. After they are
sourced, cotton and synthetic materials are spun into yarn,
which is then knitted into cotton, synthetic and blended
fabrics. We spin a significant portion of the yarn and knit a
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significant portion of the fabrics we use in our owned and
operated facilities. To a lesser extent, we purchase fabric from
several domestic and international suppliers in conjunction with
scheduled production. These fabrics are cut and sewn into
finished products, either by us or by third-party contractors.
Most of our cutting and sewing operations are located in Central
America and the Caribbean Basin.
Rising fuel, energy and utility costs may have a significant
impact on our manufacturing costs. These costs may fluctuate due
to a number of factors outside our control, including government
policy and regulation and weather conditions.
We continue to consolidate our manufacturing facilities, and
currently operate 62 manufacturing facilities, down from 70 at
the time of our spin off. In making decisions about the location
of manufacturing operations and third-party sources of supply,
we consider a number of factors, including local labor costs,
quality of production, applicable quotas and duties, and freight
costs. Over the past ten years, we have engaged in a substantial
asset relocation strategy designed to eliminate or relocate
portions of our
U.S.-based
manufacturing operations to lower-cost locations in Central
America, the Caribbean Basin and Asia. For example, during the
third quarter of 2007, we acquired the 1,300-employee textile
manufacturing operations in San Juan Opico, El Salvador of
Industrias Duraflex, S.A. de C.V., at which textiles are knit,
dyed, finished and cut. These operations had been a supplier to
us since the early 1990s. This acquisition provides a textile
base in Central America from which to expand and leverage our
large scale as well as supply our sewing network throughout
Central America. Also, we announced plans in October 2007 to
build a textile production plant in Nanjing, China, which will
be the first company-owned textile production facility in Asia.
The Nanjing textile facility will enable us to expand and
leverage our production scale in Asia as we balance our supply
chain across hemispheres. In December 2007, we acquired the
900-employee sheer hosiery facility in Las Lourdes, El Salvador
of Inversiones Bonaventure, S.A. de C.V. For the past
12 years, these operations had been a primary contract
sewing operation for Hanes and Leggs hosiery
products. The acquisition streamlines a critical part of our
overall hosiery supply chain and is part of our strategy to
operate larger, company-owned production facilities.
During the year ended December 29, 2007, in furtherance of
our efforts to execute our consolidation and globalization
strategy, we approved actions to close 17 manufacturing
facilities and three distribution centers in the Dominican
Republic, Mexico, the United States, Brazil and Canada while
moving production to lower-cost operations in Central America
and Asia. In addition, we completed previously announced actions
during 2007. We also have recognized accelerated depreciation
with respect to owned or leased assets associated with 17
manufacturing facilities and five distribution centers which we
anticipate closing in the next three to five years as part of
our consolidation and globalization strategy. The implementation
of these efforts, which are designed to improve operating
efficiencies and lower costs, has resulted and is likely to
continue to result in significant costs and savings. As further
plans are developed and approved by management and in some cases
our board of directors, we expect to recognize additional
restructuring costs to eliminate duplicative functions within
the organization and transition a significant portion of our
manufacturing capacity to lower-cost locations. As a result of
these efforts, we expect to incur approximately
$250 million in restructuring and related charges over the
three year period following the spin off from Sara Lee,
approximately half of which is expected to be noncash. As of
December 29, 2007, we have recognized approximately
$116 million in restructuring and related charges related
to these efforts. Of these charges, $43 million relates to
employee termination and other benefits, $61 million
relates to accelerated depreciation of buildings and equipment
for facilities that have been or will be closed and
$12 million relates to lease termination costs.
Finished
Goods That Are Manufactured by Third Parties
In addition to our manufacturing capabilities, we also source
finished goods designed by us from third-party manufacturers,
also referred to as turnkey products. Many of these
turnkey products are sourced from international suppliers by our
strategic sourcing hubs in Hong Kong and other locations in Asia.
All contracted and sourced manufacturing must meet our high
quality standards. Further, all contractors and third-party
manufacturers must be preaudited and adhere to our strict
supplier and business practices guidelines. These requirements
provide strict standards covering hours of work, age of workers,
health and
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safety conditions and conformity with local laws. Each new
supplier must be inspected and agree to comprehensive compliance
terms prior to performance of any production on our behalf. We
audit compliance with these standards and maintain strict
compliance performance records. In addition to our audit
procedures, we require certain of our suppliers to be Worldwide
Responsible Apparel Production, or WRAP, certified.
WRAP is a recognized apparel certification program that
independently monitors and certifies compliance with certain
specified manufacturing standards that are intended to ensure
that a given factory produces sewn goods under lawful, humane,
and ethical conditions. WRAP uses third-party, independent
certification firms and requires
factory-by-factory
certification.
Trade
Regulation
We are exposed to certain risks of doing business outside of the
United States. We import goods from company-owned facilities in
Mexico, Central America and the Caribbean Basin, and from
suppliers in those areas and in Asia, Europe, Africa and the
Middle East. These import transactions had been subject to
constraints imposed by bilateral agreements that imposed quotas
that limited the amount of certain categories of merchandise
from certain countries that could be imported into the United
States and the EU.
Pursuant to a 1995 Agreement on Textiles and Clothing under the
World Trade Organization, or WTO, effective
January 1, 2005, the United States and other WTO member
countries were required, with few exceptions, to remove quotas
on goods from WTO member countries. The complete removal of
quotas would benefit us, as well as other apparel companies, by
allowing us to source products without quantitative limitation
from any country. Several countries, including the United
States, have imposed safeguard quotas on China pursuant to the
terms of Chinas Accession Agreement to the WTO, and others
may impose similar restrictions in the future. Our management
evaluates the possible impact of these and similar actions on
our ability to import products from China. We do not expect the
imposition of these safeguards to have a material impact on us.
Our management monitors new developments and risks relating to
duties, tariffs and quotas. Changes in these areas have the
potential to harm or, in some cases, benefit our business. In
response to the changing import environment resulting from the
elimination of quotas, management has chosen to continue its
balanced approach to manufacturing and sourcing. We attempt to
limit our sourcing exposure through geographic diversification
with a mix of company-owned and contracted production, as well
as shifts of production among countries and contractors. We will
continue to manage our supply chain from a global perspective
and adjust as needed to changes in the global production
environment.
We also monitor a number of international security risks. We are
a member of the Customs-Trade Partnership Against Terrorism, or
C-TPAT, a partnership between the government and
private sector initiated after the events of September 11,
2001 to improve supply chain and border security. C-TPAT
partners work with U.S. Customs and Border Protection to
protect their supply chains from concealment of terrorist
weapons, including weapons of mass destruction. In exchange,
U.S. Customs and Border Protection provides reduced
inspections at the port of arrival and expedited processing at
the border.
Competition
The apparel essentials market is highly competitive and rapidly
evolving. Competition generally is based upon price, brand name
recognition, product quality, selection, service and purchasing
convenience. Our businesses face competition today from other
large corporations and foreign manufacturers. These competitors
include Berskhire Hathaway Inc. through its subsidiary Fruit of
the Loom, Inc., Warnaco Group Inc., Maidenform Brands, Inc. and
Gildan Activewear, Inc. in our Innerwear business segment and
Gildan Activewear, Inc., Berkshire Hathaway Inc. through its
subsidiaries Russell Corporation and Fruit of the Loom, Inc.,
Nike, Inc., adidas AG through its adidas and Reebok brands and
Under Armour Inc. in our Outerwear business segment. We also
compete with many small manufacturers across all of our business
segments. Additionally, department stores and other retailers,
including many of our customers, market and sell apparel
essentials products under private labels that compete directly
with our brands. We also face intense competition from specialty
stores who sell private label apparel not manufactured by us
such as Victorias Secret, Old Navy and The Gap.
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Our competitive strengths include our strong brands with leading
market positions, our high-volume, core essentials focus, our
significant scale of operations and our strong customer
relationships.
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Strong Brands with Leading Market
Positions. According to NPD, our brands hold
either the number one or number two U.S. market position by
sales in most product categories in which we compete, on a
rolling year-end basis as of December 31, 2007. According
to NPD, our largest brand, Hanes, is the top-selling
apparel brand in the United States by units sold, on a rolling
year-end basis as of December 31, 2007.
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High-Volume, Core Essentials Focus. We sell
high-volume, frequently replenished apparel essentials. The
majority of our core styles continue from year to year, with
variations only in color, fabric or design details, and are
frequently replenished by consumers. We believe that our status
as a high-volume seller of core apparel essentials creates a
more stable and predictable revenue base and reduces our
exposure to dramatic fashion shifts often observed in the
general apparel industry.
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Significant Scale of Operations. According to
NPD, we are the largest seller of apparel essentials in the
United States as measured by sales on a rolling year-end basis
as of December 31, 2007. Most of our products are sold to
large retailers that have high-volume demands. We believe that
we are able to leverage our significant scale of operations to
provide us with greater manufacturing efficiencies, purchasing
power and product design, marketing and customer management
resources than our smaller competitors.
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Strong Customer Relationships. We sell our
products primarily through large, high-volume retailers,
including mass merchants, department stores and national chains.
We have strong, long-term relationships with our top customers,
including relationships of more than ten years with each of our
top ten customers. We have aligned significant parts of our
organization with corresponding parts of our customers
organizations. We also have entered into customer-specific
programs such as the C9 by Champion products marketed and
sold through Target stores.
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Intellectual
Property
Overview
We market our products under hundreds of trademarks, service
marks and trade names in the United States and other countries
around the world, the most widely recognized being Hanes,
Champion, Playtex, Bali, Just My
Size, barely there, Wonderbra, C9 by
Champion, Leggs, Outer Banks and Duofold.
Some of our products are sold under trademarks that have
been licensed from third parties, such as Polo Ralph Lauren
mens underwear, and we also hold licenses from various
toy and media companies that give us the right to use certain of
their proprietary characters, names and trademarks.
Some of our own trademarks are licensed to third parties for
noncore product categories, such as Champion for
athletic-oriented accessories. In the United States, the
Playtex trademark is owned by Playtex Marketing
Corporation, of which we own a 50% share and which grants to us
a perpetual royalty-free license to the Playtex trademark
on and in connection with the sale of apparel in the United
States and Canada. The other 50% share of Playtex Marketing
Corporation is owned by Playtex Products, Inc., an unrelated
third-party, which has a perpetual royalty-free license to the
Playtex trademark on and in connection with the sale of
non-apparel products in the United States. Outside the United
States and Canada, we own the Playtex trademark and
perpetually license such trademark to Playtex Products, Inc. for
non-apparel products. In addition, as described below, as part
of Sara Lees sale in February 2006 of its European branded
apparel business, an affiliate of Sun Capital Partners, Inc., or
Sun Capital, has an exclusive, perpetual,
royalty-free license to manufacture, sell and distribute apparel
products under the Wonderbra and Playtex
trademarks in the member states of the EU, as well as
several other European nations and South Africa. We also own a
number of copyrights. Our trademarks and copyrights are
important to our marketing efforts and have substantial value.
We aggressively protect these trademarks and copyrights from
infringement and dilution through appropriate measures,
including court actions and administrative proceedings.
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Although the laws vary by jurisdiction, trademarks generally
remain valid as long as they are in use
and/or their
registrations are properly maintained. Most of the trademarks in
our portfolio, including our core brands, are covered by
trademark registrations in the countries of the world in which
we do business, with registration periods ranging between seven
and 20 years depending on the country. Trademark
registrations can be renewed indefinitely as long as the
trademarks are in use. We have an active program designed to
ensure that our trademarks are registered, renewed, protected
and maintained. We plan to continue to use all of our core
trademarks and plan to renew the registrations for such
trademarks for as long as we continue to use them. Most of our
copyrights are unregistered, although we have a sizable
portfolio of copyrighted lace designs that are the subject of a
number of registrations at the U.S. Copyright Office.
We place high importance on product innovation and design, and a
number of these innovations and designs are the subject of
patents. However, we do not regard any segment of our business
as being dependent upon any single patent or group of related
patents. In addition, we own proprietary trade secrets,
technology, and know how that we have not patented.
Shared
Trademark Relationship with Sun Capital
In February 2006, Sara Lee sold its European branded apparel
business to an affiliate of Sun Capital. In connection with the
sale, Sun Capital received an exclusive, perpetual, royalty-free
license to manufacture, sell and distribute apparel products
under the Wonderbra and Playtex trademarks in the
member states of the EU, as well as Belarus, Bosnia-Herzegovina,
Bulgaria, Croatia, Macedonia, Moldova, Morocco, Norway, Romania,
Russia, Serbia-Montenegro, South Africa, Switzerland, Ukraine,
Andorra, Albania, Channel Islands, Lichtenstein, Monaco,
Gibraltar, Guadeloupe, Martinique, Reunion and French Guyana,
which we refer to as the Covered Nations. We are not
permitted to sell Wonderbra and Playtex branded
products in the Covered Nations, and Sun Capital is not
permitted to sell Wonderbra and Playtex branded
products outside of the Covered Nations without our consent. In
connection with the sale, we also have received an exclusive,
perpetual royalty-free license to sell DIM and UNNO
branded products in Panama, Honduras, El Salvador, Costa
Rica, Nicaragua, Belize, Guatemala, Mexico, Puerto Rico, the
United States, Canada and, for DIM products, Japan. We
are not permitted to sell DIM or UNNO branded
apparel products outside of these countries and Sun Capital is
not permitted to sell DIM or UNNO branded apparel
products inside these countries. In addition, the rights to
certain European-originated brands previously part of Sara
Lees branded apparel portfolio were transferred to Sun
Capital and are not included in our brand portfolio.
Licensing
Relationship with Tupperware Corporation
In December 2005, Sara Lee sold its direct selling business,
which markets cosmetics, skin care products, toiletries and
clothing in 18 countries, to Tupperware Corporation, or
Tupperware. In connection with the sale, Dart
Industries Inc., or Dart, an affiliate of
Tupperware, received a three-year exclusive license agreement to
use the C Logo, Champion U.S.A., Wonderbra,
W by Wonderbra, The One and Only Wonderbra,
Playtex, Just My Size and Hanes trademarks
for the manufacture and sale, under the applicable brands, of
certain mens and womens apparel in the Philippines,
including underwear, socks, sportswear products, bras, panties
and girdles, and for the exhaustion of similar product inventory
in Malaysia. Dart also received a ten-year, royalty-free,
exclusive license to use the Girls Attitudes
trademark for the manufacture and sale of certain
toiletries, cosmetics, intimate apparel, underwear, sports wear,
watches, bags and towels in the Philippines. The rights and
obligations under these agreements were assigned to us as part
of the spin off.
In connection with the sale of Sara Lees direct selling
business, Tupperware also signed two five-year distributorship
agreements providing Tupperware with the right, which is
exclusive for the first three years of the agreements, to
distribute and sell, through door-to-door and similar channels,
Playtex, Champion, Rinbros, Aire,
Wonderbra, Hanes and Teens by Hanes apparel
items in Mexico that we have discontinued
and/or
determined to be obsolete. The agreements also provide
Tupperware with the exclusive right for five years to distribute
and sell through such channels such apparel items sold by us in
the ordinary course of business. The agreements also grant a
limited right to use such trademarks solely in connection with
the distribution and sale of those products in Mexico.
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Under the terms of the agreements, we reserve the right to apply
for, prosecute and maintain trademark registrations in Mexico
for those products covered by the distributorship agreement. The
rights and obligations under these agreements were assigned to
us as part of the spin off.
Environmental
Matters
We are subject to various federal, state, local and foreign laws
and regulations that govern our activities, operations and
products that may have adverse environmental, health and safety
effects, including laws and regulations relating to generating
emissions, water discharges, waste, product and packaging
content and workplace safety. Noncompliance with these laws and
regulations may result in substantial monetary penalties and
criminal sanctions. We are aware of hazardous substances or
petroleum releases at a few of our facilities and are working
with the relevant environmental authorities to investigate and
address such releases. We also have been identified as a
potentially responsible party at a few waste
disposal sites undergoing investigation and cleanup under the
federal Comprehensive Environmental Response, Compensation and
Liability Act (commonly known as Superfund) or state Superfund
equivalent programs. Where we have determined that a liability
has been incurred and the amount of the loss can reasonably be
estimated, we have accrued amounts in our balance sheet for
losses related to these sites. Compliance with environmental
laws and regulations and our remedial environmental obligations
historically have not had a material impact on our operations,
and we are not aware of any proposed regulations or remedial
obligations that could trigger significant costs or capital
expenditures in order to comply.
Government
Regulation
We are subject to U.S. federal, state and local laws and
regulations that could affect our business, including those
promulgated under the Occupational Safety and Health Act, the
Consumer Product Safety Act, the Flammable Fabrics Act, the
Textile Fiber Product Identification Act, the rules and
regulations of the Consumer Products Safety Commission and
various environmental laws and regulations. Our international
businesses are subject to similar laws and regulations in the
countries in which they operate. Our operations also are subject
to various international trade agreements and regulations. See
Trade Regulation. While we believe that
we are in compliance in all material respects with all
applicable governmental regulations, current governmental
regulations may change or become more stringent or unforeseen
events may occur, any of which could have a material adverse
effect on our financial position or results of operations.
Employees
As of December 29, 2007, we had approximately
47,600 employees, approximately 11,500 of whom were located
in the United States. Of the 11,500 employees located in
the United States, approximately 2,200 were full or part-time
employees in our stores within our direct to consumer channel.
As of December 29, 2007, in the United States,
approximately 30 employees were covered by collective
bargaining agreements. A portion of our international employees
were also covered by collective bargaining agreements. We
believe our relationships with our employees are good.
Item 1A. Risk
Factors
This section describes circumstances or events that could have a
negative effect on our financial results or operations or that
could change, for the worse, existing trends in our businesses.
The occurrence of one or more of the circumstances or events
described below could have a material adverse effect on our
financial condition, results of operations and cash flows or on
the trading prices of our common stock. The risks and
uncertainties described in this Annual Report on
Form 10-K
are not the only ones facing us. Additional risks and
uncertainties that currently are not known to us or that we
currently believe are immaterial also may adversely affect our
businesses and operations.
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Risks
Related to Our Business
We are
in the process of relocating a significant portion of our
manufacturing operations and this process involves significant
costs and the risk of operational interruption.
In furtherance of our efforts to execute our consolidation and
globalization strategy, we are relocating portions of our
manufacturing operations to lower-cost locations such as Central
America, the Caribbean Basin and Asia. The process of relocating
significant portions of our manufacturing and production
operations has resulted in and will continue to result in
significant costs and savings. As further plans are developed
and approved by management and in some cases our board of
directors, we expect to recognize additional restructuring costs
to eliminate duplicative functions within the organization and
transition a significant portion of our manufacturing capacity
to lower-cost locations. As a result of these efforts, we expect
to incur approximately $250 million in restructuring and
related charges over the three year period following the spin
off from Sara Lee, approximately half of which is expected to be
noncash. This process also may result in operational
interruptions, which may have an adverse effect on our business,
results of operations, financial condition and cash flows.
Our
supply chain relies on an extensive network of foreign
operations and any disruption to or adverse impact on such
operations may adversely affect our business, results of
operations, financial condition and cash flows.
We have an extensive global supply chain in which a significant
portion of our products are manufactured in or sourced from
locations in Central America, the Caribbean Basin, Mexico and
Asia. Potential events that may disrupt our foreign operations
include:
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political instability and acts of war or terrorism or other
international events resulting in the disruption of trade;
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other security risks;
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disruptions in shipping and freight forwarding services;
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increases in oil prices, which would increase the cost of
shipping;
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interruptions in the availability of basic services and
infrastructure, including power shortages;
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fluctuations in foreign currency exchange rates resulting in
uncertainty as to future asset and liability values, cost of
goods and results of operations that are denominated in foreign
currencies;
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extraordinary weather conditions or natural disasters, such as
hurricanes, earthquakes or tsunamis; and
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the occurrence of an epidemic, the spread of which may impact
our ability to obtain products on a timely basis.
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Disruptions in our foreign supply chain could negatively impact
our business by interrupting production in offshore facilities,
increasing our cost of sales, disrupting merchandise deliveries,
delaying receipt of the products into the United States or
preventing us from sourcing our products at all. Depending on
timing, these events could also result in lost sales,
cancellation charges or excessive markdowns. All of the
foregoing can have an adverse affect on our business, results of
operations, financial condition and cash flows.
The
integration of our information technology systems is complex,
and delays or problems with this integration may cause serious
disruption or harm to our business.
As we continue to consolidate our operations, we are in the
process of integrating currently unrelated information
technology systems across our company, which has resulted in
operational inefficiencies and in some cases increased our
costs. This process involves the replacement of eight
independent systems environments running on different technology
platforms so that our business functions are served by fewer
platforms. We are subject to the risk that we will not be able
to absorb the level of systems change, commit the necessary
resources or focus the management attention necessary for the
implementation to succeed. Many
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key strategic initiatives of major business functions, such as
our supply chain and our finance operations, depend on advanced
capabilities enabled by the new systems and if we fail to
properly execute or if we miss critical deadlines in the
implementation of this initiative, we could experience serious
disruption and harm to our business.
We
operate in a highly competitive and rapidly evolving market, and
our market share and results of operations could be adversely
affected if we fail to compete effectively in the
future.
The apparel essentials market is highly competitive and evolving
rapidly. Competition is generally based upon price, brand name
recognition, product quality, selection, service and purchasing
convenience. Our businesses face competition today from other
large corporations and foreign manufacturers. These competitors
include Berskhire Hathaway Inc. through its subsidiary Fruit of
the Loom, Inc., Warnaco Group Inc., Maidenform Brands, Inc. and
Gildan Activewear, Inc. in our Innerwear business segment and
Gildan Activewear, Inc., Berkshire Hathaway Inc. through its
subsidiaries Russell Corporation and Fruit of the Loom, Inc.,
Nike, Inc., adidas AG through its adidas and Reebok brands and
Under Armour Inc. in our Outerwear business segment. We also
compete with many small companies across all of our business
segments. Additionally, department stores and other retailers,
including many of our customers, market and sell apparel
essentials products under private labels that compete directly
with our brands. These customers may buy goods that are
manufactured by others, which represents a lost business
opportunity for us, or they may sell private label products
manufactured by us, which have significantly lower gross margins
than our branded products. We also face intense competition from
specialty stores that sell private label apparel not
manufactured by us, such as Victorias Secret, Old Navy and
The Gap. Increased competition may result in a loss of or a
reduction in shelf space and promotional support and reduced
prices, in each case decreasing our cash flows, operating
margins and profitability. Our ability to remain competitive in
the areas of price, quality, brand recognition, research and
product development, manufacturing and distribution will, in
large part, determine our future success. If we fail to compete
successfully, our market share, results of operations and
financial condition will be materially and adversely affected.
If we
fail to manage our inventory effectively, we may be required to
establish additional inventory reserves or we may not carry
enough inventory to meet customer demands, causing us to suffer
lower margins or losses.
We are faced with the constant challenge of balancing our
inventory with our ability to meet marketplace needs. Inventory
reserves can result from the complexity of our supply chain, a
long manufacturing process and the seasonal nature of certain
products. As a result, we are subject to high levels of
obsolescence and excess stock. Based on discussions with our
customers and internally generated projections, we produce,
purchase
and/or store
raw material and finished goods inventory to meet our expected
demand for delivery. However, we sell a large number of our
products to a small number of customers, and these customers
generally are not required by contract to purchase our goods.
If, after producing and storing inventory in anticipation of
deliveries, demand is lower than expected, we may have to hold
inventory for extended periods or sell excess inventory at
reduced prices, in some cases below our cost. There are inherent
uncertainties related to the recoverability of inventory, and it
is possible that market factors and other conditions underlying
the valuation of inventory may change in the future and result
in further reserve requirements. Excess inventory charges can
reduce gross margins or result in operating losses, lowered
plant and equipment utilization and lowered fixed operating cost
absorption, all of which could have a material adverse effect on
our business, results of operations, financial condition or cash
flows.
Conversely, we also are exposed to lost business opportunities
if we underestimate market demand and produce too little
inventory for any particular period. Because sales of our
products are generally not made under contract, if we do not
carry enough inventory to satisfy our customers demands
for our products within an acceptable time frame, they may seek
to fulfill their demands from one or several of our competitors
and may reduce the amount of business they do with us. Any such
action could have a material adverse effect on our business,
results of operations, financial condition and cash flows.
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Sales
of and demand for our products may decrease if we fail to keep
pace with evolving consumer preferences and trends, which could
have an adverse effect on net sales and
profitability.
Our success depends on our ability to anticipate and respond
effectively to evolving consumer preferences and trends and to
translate these preferences and trends into marketable product
offerings. If we are unable to successfully anticipate, identify
or react to changing styles or trends or misjudge the market for
our products, our sales may be lower than expected and we may be
faced with a significant amount of unsold finished goods
inventory. In response, we may be forced to increase our
marketing promotions, provide markdown allowances to our
customers or liquidate excess merchandise, any of which could
have a material adverse effect on our net sales and
profitability. Our brand image may also suffer if customers
believe that we are no longer able to offer innovative products,
respond to consumer preferences or maintain the quality of our
products.
We
rely on a relatively small number of customers for a significant
portion of our sales, and the loss of or material reduction in
sales to any of our top customers would have a material adverse
effect on our business, results of operations, financial
condition and cash flows.
During the year ended December 29, 2007, our top ten
customers accounted for 62% of our net sales and our top
customer, Wal-Mart, accounted for 27% of our net sales. We
expect that these customers will continue to represent a
significant portion of our net sales in the future. In addition,
our top customers are the largest market participants in our
primary distribution channels across all of our product lines.
Any loss of or material reduction in sales to any of our top ten
customers, especially Wal-Mart, would be difficult to recapture,
and would have a material adverse effect on our business,
results of operations, financial condition and cash flows.
We
generally do not sell our products under contracts, and, as a
result, our customers are generally not contractually obligated
to purchase our products, which causes some uncertainty as to
future sales and inventory levels.
We generally do not enter into purchase agreements that obligate
our customers to purchase our products, and as a result, most of
our sales are made on a purchase order basis. For example, we
have no agreements with Wal-Mart that obligate Wal-Mart to
purchase our products. If any of our customers experiences a
significant downturn in its business, or fails to remain
committed to our products or brands, the customer is generally
under no contractual obligation to purchase our products and,
consequently, may reduce or discontinue purchases from us. In
the past, such actions have resulted in a decrease in sales and
an increase in our inventory and have had an adverse effect on
our business, results of operations, financial condition and
cash flows. If such actions occur again in the future, our
business, results of operations and financial condition will
likely be similarly affected.
Continued
growth of our existing customers could result in increased
pricing pressure, reduced floor space for our products and other
changes that could be harmful to our business.
The retailers to which we sell our products have grown larger,
partly due to retailer consolidation, and, as such, now are able
to exercise greater negotiating power when purchasing our
products. Additionally, as our customers grow larger, they
increasingly may require us to provide them with some of our
products on an exclusive basis, which could cause an increase in
the number of stock keeping units, or SKUs, we must
carry and, consequently, increase our inventory levels and
working capital requirements. Moreover, as our customers grow
larger they may increasingly seek markdown allowances,
incentives and other forms of economic support which reduce our
gross margins and affect our profitability. Our financial
performance is negatively affected by these pricing pressures
when we are forced to reduce our prices without being able to
correspondingly reduce our production costs.
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Our
customers generally purchase our products on credit, and as a
result, our results of operations, financial condition and cash
flows may be adversely affected if our customers experience
financial difficulties.
During the past several years, various retailers, including some
of our largest customers, have experienced significant
difficulties, including restructurings, bankruptcies and
liquidations. This could adversely affect us because our
customers generally pay us after goods are delivered. Adverse
changes in our customers financial position could cause us
to limit or discontinue business with that customer, require us
to assume more credit risk relating to that customers
future purchases or limit our ability to collect accounts
receivable relating to previous purchases by that customer, all
of which could have a material adverse effect on our business,
results of operations, financial condition and cash flows.
International
trade regulations may increase our costs or limit the amount of
products that we can import from suppliers in a particular
country, which could have an adverse effect on our
business.
Because a significant amount of our manufacturing and production
operations are in or our products are sourced from, overseas
locations, we are subject to international trade regulations.
The international trade regulations to which we are subject or
may become subject include tariffs, safeguards or quotas. These
regulations could limit the countries from which we produce or
source our products or significantly increase the cost of
operating in or obtaining materials originating from certain
countries. Restrictions imposed by international trade
regulations can have a particular impact on our business when,
after we have moved our operations to a particular location, new
unfavorable regulations are enacted in that area or favorable
regulations currently in effect are changed. The countries in
which our products are manufactured or into which they are
imported may from time to time impose additional new
regulations, or modify existing regulations, including:
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additional duties, taxes, tariffs and other charges on imports,
including retaliatory duties or other trade sanctions, which may
or may not be based on WTO rules, and which would increase the
cost of products purchased from suppliers in such countries;
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quantitative limits that may limit the quantity of goods which
may be imported into the United States from a particular
country, including the imposition of further
safeguard mechanisms by the U.S. government or
governments in other jurisdictions, limiting our ability to
import goods from particular countries, such as China;
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changes in the classification of products that could result in
higher duty rates than we have historically paid;
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modification of the trading status of certain countries;
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requirements as to where products are manufactured;
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creation of export licensing requirements, imposition of
restrictions on export quantities or specification of minimum
export pricing; or
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creation of other restrictions on imports.
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Adverse international trade regulations, including those listed
above, would have a material adverse effect on our business,
results of operations, financial condition and cash flows.
Significant
fluctuations and volatility in the price of cotton and other raw
materials we purchase may have a material adverse effect on our
business, results of operations, financial condition and cash
flows.
Cotton is the primary raw material used in the manufacture of
many of our products. Our costs for cotton yarn and cotton-based
textiles vary based upon the fluctuating and often volatile cost
of cotton, which is affected by weather, consumer demand,
speculation on the commodities market, the relative valuations
and fluctuations of the currencies of producer versus consumer
countries and other factors that are generally unpredictable and
beyond our control. In addition, fluctuations in crude oil or
petroleum prices may also influence the prices of related items
used in our business, such as chemicals, dyestuffs, polyester
yarn and
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foam. Rising fuel, energy and utility costs may have a
significant impact on our manufacturing costs. These costs may
fluctuate due to a number of factors outside our control,
including government policy and regulation and weather
conditions.
We are not always successful in our efforts to protect our
business from the volatility of the market price of cotton
through short-term supply agreements and hedges, and our
business can be adversely affected by dramatic movements in
cotton prices. For example, we estimate that, excluding the
impact of futures contracts, a change of $0.01 per pound in
cotton prices would affect our annual raw material costs by
$3.3 million, at current levels of production. The ultimate
effect of this change on our earnings cannot be quantified, as
the effect of movements in cotton prices on industry selling
prices are uncertain, but any dramatic increase in the price of
cotton would have a material adverse effect on our business,
results of operations, financial condition and cash flows.
The
loss of one or more of our suppliers of finished goods or raw
materials may interrupt our supplies and materially harm our
business.
We purchase all of the raw materials used in our products and
21% of the apparel designed by us from a limited number of
third-party suppliers and manufacturers. Our ability to meet our
customers needs depends on our ability to maintain an
uninterrupted supply of raw materials and finished products from
our third-party suppliers and manufacturers. Our business,
financial condition or results of operations could be adversely
affected if any of our principal third-party suppliers or
manufacturers experience production problems, lack of capacity
or transportation disruptions. The magnitude of this risk
depends upon the timing of the changes, the materials or
products that the third-party manufacturers provide and the
volume of production.
Our dependence on third parties for raw materials and finished
products subjects us to the risk of supplier failure and
customer dissatisfaction with the quality of our products.
Quality failures by our third-party manufacturers or changes in
their financial or business condition that affect their
production could disrupt our ability to supply quality products
to our customers and thereby materially harm our business.
Due to
the extensive nature of our foreign operations, fluctuations in
foreign currency exchange rates could negatively impact our
results of operations.
We sell a majority of our products in transactions denominated
in U.S. dollars; however, we purchase many of our products,
pay a portion of our wages and make other payments in our supply
chain in foreign currencies. As a result, if the
U.S. dollar were to weaken against any of these currencies,
our cost of sales could increase substantially. Outside the
United States, we may pay for materials or finished products in
U.S. dollars, and in some cases a strengthening of the
U.S. dollar could effectively increase our costs where we
use foreign currency to purchase the U.S. dollars we need
to make such payments. We use foreign exchange forward and
option contracts to hedge material exposure to adverse changes
in foreign exchange rates. We are also exposed to gains and
losses resulting from the effect that fluctuations in foreign
currency exchange rates have on the reported results in our
Consolidated Financial Statements due to the translation of
operating results and financial position of our foreign
subsidiaries. In addition, currency fluctuations can impact the
price of cotton, the primary raw material we use in our business.
We had
approximately 47,600 employees worldwide as of
December 29, 2007, and our business operations and
financial performance could be adversely affected by changes in
our relationship with our employees or changes to U.S. or
foreign employment regulations.
We had approximately 47,600 employees worldwide as of
December 29, 2007. This means we have a significant
exposure to changes in domestic and foreign laws governing our
relationships with our employees, including wage and hour laws
and regulations, fair labor standards, minimum wage
requirements, overtime pay, unemployment tax rates,
workers compensation rates, citizenship requirements and
payroll taxes, which likely would have a direct impact on our
operating costs. Approximately 36,100 of those employees were
outside of the United States. A significant increase in minimum
wage or overtime rates in countries where we have employees
could have a significant impact on our operating costs and may
require that we relocate those
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operations or take other steps to mitigate such increases, all
of which may cause us to incur additional costs, expend
resources responding to such increases and lower our margins.
In addition, some of our employees are members of labor
organizations or are covered by collective bargaining
agreements. If there were a significant increase in the number
of our employees who are members of labor organizations or
become parties to collective bargaining agreements, we would
become vulnerable to a strike, work stoppage or other labor
action by these employees that could have an adverse effect on
our business.
We may
suffer negative publicity if we or our third-party manufacturers
violate labor laws or engage in practices that are viewed as
unethical or illegal, which could cause a loss of
business.
We cannot fully control the business and labor practices of our
third-party manufacturers, the majority of whom are located in
Central America, the Caribbean Basin and Asia. If one of our own
manufacturing operations or one of our third-party manufacturers
violates or is accused of violating local or international labor
laws or other applicable regulations, or engages in labor or
other practices that would be viewed in any market in which our
products are sold as unethical, we could suffer negative
publicity, which could tarnish our brands image or result
in a loss of sales. In addition, if such negative publicity
affected one of our customers, it could result in a loss of
business for us.
The
success of our business is tied to the strength and reputation
of our brands, including brands that we license to other
parties. If other parties take actions that weaken, harm the
reputation of or cause confusion with our brands, our business,
and consequently our sales, results of operations and cash
flows, may be adversely affected.
We license some of our important trademarks to third parties.
For example, we license Champion to third parties for
athletic-oriented accessories. Although we make concerted
efforts to protect our brands through quality control mechanisms
and contractual obligations imposed on our licensees, there is a
risk that some licensees may not be in full compliance with
those mechanisms and obligations. In that event, or if a
licensee engages in behavior with respect to the licensed marks
that would cause us reputational harm, we could experience a
significant downturn in that brands business, adversely
affecting our sales and results of operations. Similarly, any
misuse of the Wonderbra or Playtex brands by Sun
Capital could result in negative publicity and a loss of sales
for our products under these brands, any of which may have a
material adverse effect on our business, results of operations,
financial condition or cash flows.
We
design, manufacture, source and sell products under trademarks
that are licensed from third parties. If any licensor takes
actions related to their trademarks that would cause their
brands or our company reputational harm, our business may be
adversely affected.
We design, manufacture, source and sell a number of our products
under trademarks that are licensed from third parties such as
our Polo Ralph Lauren mens underwear. Because we do not
control the brands licensed to us, our licensors could make
changes to their brands or business models that could result in
a significant downturn in a brands business, adversely
affecting our sales and results of operations. If any licensor
engages in behavior with respect to the licensed marks that
would cause us reputational harm, or if any of the brands
licensed to us violates the trademark rights of another or are
deemed to be invalid or unenforceable, we could experience a
significant downturn in that brands business, adversely
affecting our sales and results of operations, and we may be
required to expend significant amounts on public relations,
advertising and, possibly, legal fees.
We are
prohibited from selling our Wonderbra and Playtex intimate
apparel products in the EU, as well as certain other countries
in Europe and South Africa, and therefore are unable to take
advantage of business opportunities that may arise in such
countries.
In February 2006, Sara Lee sold its European branded apparel
business to Sun Capital. In connection with the sale, Sun
Capital received an exclusive, perpetual, royalty-free license
to manufacture, sell and
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distribute apparel products under the Wonderbra and
Playtex trademarks in the member states of the EU, as
well as Russia, South Africa, Switzerland and certain other
nations in Europe. Due to the exclusive license, we are not
permitted to sell Wonderbra and Playtex branded
products in these nations and Sun Capital is not permitted to
sell Wonderbra and Playtex branded products
outside of these nations. Consequently, we will not be able to
take advantage of business opportunities that may arise relating
to the sale of Wonderbra and Playtex products in
these nations. For more information on these sales restrictions
see Business Intellectual Property.
Our
indebtedness subjects us to various restrictions and could
decrease our profitability and otherwise adversely affect our
business.
As described in Managements Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources, our indebtedness includes
the $2.1 billion senior secured credit facility that we
entered into on September 5, 2006 (the Senior Secured
Credit Facility), the $450 million senior secured
second lien credit facility that we entered into on
September 5, 2006 (the Second Lien Credit
Facility and, together with the Senior Secured Credit
Facility, the Credit Facilities), our
$500 million Floating Rate Senior Notes due 2014 (the
Floating Rate Senior Notes) and the
$250 million accounts receivable securitization facility
that we entered into on November 27, 2007 (the
Receivables Facility). The Senior Secured Credit
Facility, Second Lien Credit Facility and the indenture
governing the Floating Rate Senior Notes contain restrictions
that affect, and in some cases significantly limit or prohibit,
among other things, our ability to borrow funds, pay dividends
or make other distributions, make investments, engage in
transactions with affiliates, or create liens on our assets. In
addition, the Credit Facilities and the Receivables Facility
require us to maintain financial ratios. If we fail to comply
with the covenant restrictions contained in these agreements,
that failure could result in a default that accelerates the
maturity of the indebtedness under such facilities.
Our leverage also could put us at a competitive disadvantage
compared to our competitors that are less leveraged. These
competitors could have greater financial flexibility to pursue
strategic acquisitions, secure additional financing for their
operations by incurring additional debt, expend capital to
expand their manufacturing and production operations to
lower-cost areas and apply pricing pressure on us. In addition,
because many of our customers rely on us to fulfill a
substantial portion of their apparel essentials demand, any
concern these customers may have regarding our financial
condition may cause them to reduce the amount of products they
purchase from us. Our leverage could also impede our ability to
withstand downturns in our industry or the economy in general.
Our
indebtedness restricts our ability to obtain additional capital
in the future.
If we need to incur additional debt or issue equity in order to
fund working capital and capital expenditures or to make
acquisitions and other investments, debt or equity financing may
not be available to us on acceptable terms or at all. If we are
not able to obtain sufficient financing, we may be unable to
maintain or expand our business. If we raise funds through the
issuance of debt or equity, any debt securities or preferred
stock issued will have rights, preferences and privileges senior
to those of holders of our common stock in the event of a
liquidation, and the terms of the debt securities may impose
restrictions on our operations. If we raise funds through the
issuance of equity, the issuance would dilute the ownership
interest of our stockholders.
The restrictions contained in the Credit Facilities and in the
indenture governing the Floating Rate Senior Notes restrict our
ability to obtain additional capital in the future to fund
capital expenditures or acquisitions, meet our debt payment
obligations and capital commitments, fund any operating losses
or future development of our business affiliates, obtain lower
borrowing costs that are available from secured lenders or
engage in advantageous transactions that monetize our assets, or
conduct other necessary or prudent corporate activities.
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If we
fail to meet our payment or other obligations, the lenders could
foreclose on, and acquire control of, substantially all of our
assets.
In connection with our incurrence of indebtedness under the
Credit Facilities, the lenders under those facilities have
received a pledge of substantially all of our existing and
future direct and indirect subsidiaries, with certain customary
or
agreed-upon
exceptions for foreign subsidiaries and certain other
subsidiaries. Additionally, these lenders generally have a lien
on substantially all of our assets and the assets of our
subsidiaries, with certain exceptions. The financial
institutions that are party to the Receivables Facility have a
lien on certain of our domestic accounts receivables. As a
result of these pledges and liens, if we fail to meet our
payment or other obligations under the Senior Secured Credit
Facility, the Second Lien Credit Facility or the Receivables
Facility, the lenders under those facilities will be entitled to
foreclose on substantially all of our assets and, at their
option, liquidate these assets.
To
service our debt obligations, we may need to increase the
portion of the income of our foreign subsidiaries that is
expected to be remitted to the United States, which could
increase our income tax expense.
We pay U.S. federal income taxes on that portion of the
income of our foreign subsidiaries that is expected to be
remitted to the United States and be taxable. The amount of the
income of our foreign subsidiaries we remit to the United States
may significantly impact our U.S. federal income tax rate.
In order to service our debt obligations, we may need to
increase the portion of the income of our foreign subsidiaries
that we expect to remit to the United States, which may
significantly increase our income tax expense. Consequently, our
tax rate has been, and we believe in future periods is likely to
continue to be, higher, on average, than our historical income
tax rates in periods prior to our spin off from Sara Lee.
Risks
Related to Our Status as a Newly Independent Company
We
have a limited operating history as an independent company upon
which our performance can be evaluated and, accordingly, our
prospects must be considered in light of the risks that any
newly independent company encounters.
Prior to the consummation of the spin off, we operated as part
of Sara Lee. Accordingly, we have limited experience operating
as an independent company and performing various corporate
functions, including human resources, tax administration, legal
(including compliance with the Sarbanes-Oxley Act of 2002 and
with the periodic reporting obligations of the Securities
Exchange Act of 1934, or the Exchange Act), treasury
administration, investor relations, internal audit, insurance,
information technology and telecommunications services, as well
as the accounting for many items such as equity compensation,
income taxes, derivatives, intangible assets and pensions. Our
prospects must be considered in light of the risks, expenses and
difficulties encountered by companies in the early stages of
independent business operations, particularly companies such as
ours in highly competitive markets with complex supply chain
operations.
Our
historical financial information is not necessarily indicative
of our results as a separate company and therefore may not be
reliable as an indicator of our future financial
results.
Our historical financial statements for periods prior to the
spin off were created from Sara Lees financial statements
using our historical results of operations and historical bases
of assets and liabilities as part of Sara Lee. Accordingly,
historical financial information for periods prior to the spin
off is not necessarily indicative of what our financial
position, results of operations and cash flows would have been
if we had been a separate, stand-alone entity during those
periods.
Our historical financial information for periods prior to the
spin off is not necessarily indicative of what our results of
operations, financial position and cash flows will be in the
future and, for periods prior to the spin off, does not reflect
many significant changes in our capital structure, funding and
operations resulting from the spin off. While our results of
operations for periods prior to the spin off include all costs
of Sara Lees branded apparel business, these costs and
expenses do not include all of the costs that would have been or
will be incurred by us as an independent company. In addition,
we have not made adjustments to our
24
historical financial information to reflect changes, many of
which are significant, that occurred in our cost structure,
financing and operations as a result of the spin off, including
the substantial debt we incurred and pension liabilities we
assumed in connection with the spin off. These changes include
potentially increased costs associated with reduced economies of
scale and purchasing power.
Our effective income tax rate as reflected in our historical
financial information for periods prior to the spin off has not
been and may not be indicative of our future effective income
tax rate. Among other things, the rate may be materially
impacted by:
|
|
|
|
|
changes in the mix of our earnings from the various
jurisdictions in which we operate;
|
|
|
|
the tax characteristics of our earnings;
|
|
|
|
the timing and amount of earnings of foreign subsidiaries that
we repatriate to the United States, which may increase our tax
expense and taxes paid; and
|
|
|
|
the timing and results of any reviews of our income tax filing
positions in the jurisdictions in which we transact business.
|
If the
IRS determines that our spin off from Sara Lee does not qualify
as a tax-free distribution or a tax-free
reorganization, we may be subject to substantial
liability.
Sara Lee has received a private letter ruling from the Internal
Revenue Service, or the IRS, to the effect that,
among other things, the spin off qualifies as a tax-free
distribution for U.S. federal income tax purposes under
Section 355 of the Internal Revenue Code of 1986, as
amended, or the Internal Revenue Code, and as part
of a tax-free reorganization under Section 368(a)(1)(D) of
the Internal Revenue Code, and the transfer to us of assets and
the assumption by us of liabilities in connection with the spin
off will not result in the recognition of any gain or loss for
U.S. federal income tax purposes to Sara Lee.
Although the private letter ruling relating to the qualification
of the spin off under Sections 355 and 368(a)(1)(D) of the
Internal Revenue Code generally is binding on the IRS, the
continuing validity of the ruling is subject to the accuracy of
factual representations and assumptions made in connection with
obtaining such private letter ruling. Also, as part of the
IRSs general policy with respect to rulings on spin off
transactions under Section 355 of the Internal Revenue
Code, the private letter ruling obtained by Sara Lee is based
upon representations by Sara Lee that certain conditions which
are necessary to obtain tax-free treatment under
Section 355 and Section 368(a)(1)(D) of the Internal
Revenue Code have been satisfied, rather than a determination by
the IRS that these conditions have been satisfied. Any
inaccuracy in these representations could invalidate the ruling.
If the spin off does not qualify for tax-free treatment for
U.S. federal income tax purposes, then, in general, Sara
Lee would be subject to tax as if it has sold the common stock
of our company in a taxable sale for its fair market value. Sara
Lees stockholders would be subject to tax as if they had
received a taxable distribution equal to the fair market value
of our common stock that was distributed to them, taxed as a
dividend (without reduction for any portion of a Sara Lees
stockholders basis in its shares of Sara Lee common stock)
for U.S. federal income tax purposes and possibly for
purposes of state and local tax law, to the extent of a Sara
Lees stockholders pro rata share of Sara Lees
current and accumulated earnings and profits (including any
arising from the taxable gain to Sara Lee with respect to the
spin off). It is expected that the amount of any such taxes to
Sara Lees stockholders and to Sara Lee would be
substantial.
Pursuant to a tax sharing agreement we entered into with Sara
Lee in connection with the spin off, we agreed to indemnify Sara
Lee and its affiliates for any liability for taxes of Sara Lee
resulting from: (1) any action or failure to act by us or
any of our affiliates following the completion of the spin off
that would be inconsistent with or prohibit the spin off from
qualifying as a tax-free transaction to Sara Lee and to Sara
Lees stockholders under Sections 355 and 368(a)(1)(D)
of the Internal Revenue Code, or (2) any action or failure
to act by us or any of our affiliates following the completion
of the spin off that would be inconsistent with or cause to be
untrue any material, information, covenant or representation
made in connection with the private letter ruling obtained by
Sara Lee from the IRS relating to, among other things, the
qualification of the
25
spin off as a tax-free transaction described under
Sections 355 and 368(a)(1)(D) of the Internal Revenue Code.
Our indemnification obligations to Sara Lee and its affiliates
are not limited in amount or subject to any cap. We expect that
the amount of any such taxes to Sara Lee would be substantial.
We
agreed with Sara Lee to certain restrictions in order to comply
with U.S. federal income tax requirements for a tax-free spin
off and we may not be able to engage in acquisitions and other
strategic transactions that may otherwise be in our best
interests.
Current U.S. federal tax law that applies to spin offs
generally creates a presumption that the spin off would be
taxable to Sara Lee but not to its stockholders if we engage in,
or enter into an agreement to engage in, a plan or series of
related transactions that would result in the acquisition of a
50% or greater interest (by vote or by value) in our stock
ownership during the four-year period beginning on the date that
begins two years before the spin off, unless it is established
that the transaction is not pursuant to a plan related to the
spin off. U.S. Treasury Regulations generally provide that
whether an acquisition of our stock and a spin off are part of a
plan is determined based on all of the facts and circumstances,
including specific factors listed in the regulations. In
addition, the regulations provide certain safe
harbors for acquisitions of our stock that are not
considered to be part of a plan related to the spin off. There
are other restrictions imposed on us under current
U.S. federal tax law for spin offs and with which we will
need to comply in order to preserve the favorable tax treatment
of the distribution, such as continuing to own and manage our
apparel business and limitations on sales or redemptions of our
common stock for cash or other property following the
distribution.
In our tax sharing agreement with Sara Lee, we agreed that,
among other things, we will not take any actions that would
result in any tax being imposed on Sara Lee as a result of the
spin off. Further, for the two-year period following the spin
off, we agreed, among other things, not to: (1) sell or
otherwise issue equity securities or repurchase any of our stock
except in certain circumstances permitted by the IRS guidelines;
(2) voluntarily dissolve or liquidate or engage in any
merger (except certain cash acquisition mergers), consolidation,
or other reorganizations except for certain mergers of our
wholly-owned subsidiaries to the extent not inconsistent with
the tax-free status of the spin off; (3) sell, transfer or
otherwise dispose of more than 50% of our assets, excluding any
sales conducted in the ordinary course of business; or
(4) cease, transfer or dispose of all or any portion of our
socks business.
We are, however, permitted to take certain actions otherwise
prohibited by the tax sharing agreement if we provide Sara Lee
with an unqualified opinion of tax counsel or private letter
ruling from the IRS, acceptable to Sara Lee, to the effect that
these actions will not affect the tax-free nature of the spin
off. These restrictions could substantially limit our strategic
and operational flexibility, including our ability to finance
our operations by issuing equity securities, make acquisitions
using equity securities, repurchase our equity securities, raise
money by selling assets or enter into business combination
transactions.
The
terms of our spin off from Sara Lee, anti-takeover provisions of
our charter and bylaws, as well as Maryland law and our
stockholder rights agreement, may reduce the likelihood of any
potential change of control or unsolicited acquisition proposal
that you might consider favorable.
The terms of our spin off from Sara Lee could delay or prevent a
change of control that our stockholders may favor. An
acquisition or issuance of our common stock could trigger the
application of Section 355(e) of the Internal Revenue Code.
Under the tax sharing agreement that we entered into with Sara
Lee, we are required to indemnify Sara Lee for the resulting tax
in connection with such an acquisition or issuance and this
indemnity obligation might discourage, delay or prevent a change
of control that our stockholders may consider favorable. Our
charter and bylaws and Maryland law contain provisions that
could make it harder for a third-party to acquire us without the
consent of our board of directors. Our charter permits our board
of directors, without stockholder approval, to amend the charter
to increase or decrease the aggregate number of shares of stock
or the number of shares of stock of any class or series that we
have the authority to issue. In addition, our board of directors
may classify or reclassify any unissued shares of common stock
or preferred stock and may set the preferences, conversion or
other rights, voting powers and other terms of the classified or
reclassified shares. Our board of directors could establish a
series of preferred stock that could have the effect of
delaying, deferring or preventing a transaction or a change in
control that might involve a premium
26
price for our common stock or otherwise be in the best interest
of our stockholders. Our board of directors also is permitted,
without stockholder approval, to implement a classified board
structure at any time.
Our bylaws, which only can be amended by our board of directors,
provide that nominations of persons for election to our board of
directors and the proposal of business to be considered at a
stockholders meeting may be made only in the notice of the
meeting, by our board of directors or by a stockholder who is
entitled to vote at the meeting and has complied with the
advance notice procedures of our bylaws. Also, under Maryland
law, business combinations between us and an interested
stockholder or an affiliate of an interested stockholder,
including mergers, consolidations, share exchanges or, in
circumstances specified in the statute, asset transfers or
issuances or reclassifications of equity securities, are
prohibited for five years after the most recent date on which
the interested stockholder becomes an interested stockholder. An
interested stockholder includes any person who beneficially owns
10% or more of the voting power of our shares or any affiliate
or associate of ours who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10%
or more of the voting power of our stock. A person is not an
interested stockholder under the statute if our board of
directors approved in advance the transaction by which he
otherwise would have become an interested stockholder. However,
in approving a transaction, our board of directors may provide
that its approval is subject to compliance, at or after the time
of approval, with any terms and conditions determined by our
board. After the five-year prohibition, any business combination
between us and an interested stockholder generally must be
recommended by our board of directors and approved by two
supermajority votes or our common stockholders must receive a
minimum price, as defined under Maryland law, for their shares.
The statute permits various exemptions from its provisions,
including business combinations that are exempted by our board
of directors prior to the time that the interested stockholder
becomes an interested stockholder.
In addition, we have adopted a stockholder rights agreement
which provides that in the event of an acquisition of or tender
offer for 15% of our outstanding common stock, our stockholders
shall be granted rights to purchase our common stock at a
certain price. The stockholder rights agreement could make it
more difficult for a third-party to acquire our common stock
without the approval of our board of directors.
These and other provisions of Maryland law or our charter and
bylaws could have the effect of delaying, deferring or
preventing a transaction or a change in control that might
involve a premium price for our common stock or otherwise be
considered favorably by our stockholders.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable.
|
|
Item 1C.
|
Executive
Officers of the Registrant
|
The chart below lists our executive officers and is followed by
biographic information about them. No family relationship exists
between any of our directors or executive officers.
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Positions
|
|
Richard A. Noll
|
|
|
50
|
|
|
|
Chief Executive Officer and Director
|
William J. Nictakis
|
|
|
47
|
|
|
|
President, Chief Commercial Officer
|
E. Lee Wyatt Jr.
|
|
|
55
|
|
|
|
Executive Vice President, Chief Financial Officer
|
Gerald W. Evans Jr.
|
|
|
48
|
|
|
|
Executive Vice President, Chief Supply Chain Officer
|
Kevin D. Hall
|
|
|
49
|
|
|
|
Executive Vice President, Chief Marketing Officer
|
Joia M. Johnson
|
|
|
47
|
|
|
|
Executive Vice President, General Counsel and Corporate
Secretary
|
Joan P. McReynolds
|
|
|
57
|
|
|
|
Executive Vice President, Chief Customer Officer
|
Kevin W. Oliver
|
|
|
50
|
|
|
|
Executive Vice President, Human Resources
|
W. Howard Upchurch, Jr.
|
|
|
43
|
|
|
|
Executive Vice President, General Manager of Domestic Innerwear
|
27
Richard A. Noll has served as our Chief Executive Officer
since April 2006 and a director since our formation in September
2005. From December 2002 until the completion of the spin off in
September 2006, he also served as a Senior Vice President of
Sara Lee. From July 2005 to April 2006, Mr. Noll served as
President and Chief Operating Officer of Sara Lee Branded
Apparel. Mr. Noll served as Chief Executive Officer of the
Sara Lee Bakery Group from July 2003 to July 2005 and as the
Chief Operating Officer of the Sara Lee Bakery Group from July
2002 to July 2003. From July 2001 to July 2002, Mr. Noll
was Chief Executive Officer of Sara Lee Legwear, Sara Lee Direct
and Sara Lee Mexico. Mr. Noll joined Sara Lee in 1992 and
held a number of management positions with increasing
responsibilities while employed by Sara Lee.
William J. Nictakis has served as our President, Chief
Commercial Officer since November 2007. From June 2003 until
November 2007, Mr. Nictakis served as President of the Sara
Lee Bakery Group. From May 1999 through June 2003,
Mr. Nictakis was Vice President, Sales, of Frito-Lay, Inc.,
a subsidiary of PepsiCo, Inc. that manufactures, markets, sells
and distributes branded snacks.
E. Lee Wyatt Jr. has served as our Executive Vice
President, Chief Financial Officer since the completion of the
spin off in September 2006. From September 2005 until the
completion of the spin off, Mr. Wyatt served as a Vice
President of Sara Lee and as Chief Financial Officer of Sara Lee
Branded Apparel. Prior to joining Sara Lee, Mr. Wyatt was
Executive Vice President, Chief Financial Officer and Treasurer
of Sonic Automotive, Inc. from April 2003 to September 2005, and
Vice President of Administration and Chief Financial Officer of
Sealy Corporation from September 1998 to February 2003.
Gerald W. Evans Jr. has served as our Executive Vice
President, Chief Supply Chain Officer since the completion of
the spin off in September 2006. From July 2005 until the
completion of the spin off, Mr. Evans served as a Vice
President of Sara Lee and as Chief Supply Chain Officer of Sara
Lee Branded Apparel. Prior to July 2005, Mr. Evans served
as President and Chief Executive Officer of Sara Lee Sportswear
and Underwear from March 2003 until June 2005 and as President
and Chief Executive Officer of Sara Lee Sportswear from March
1999 to February 2003.
Kevin D. Hall has served as our Executive Vice President,
Chief Marketing Officer since June 2006. From June 2005 until
June 2006, Mr. Hall served on the advisory board of, and
was a consultant to, Affinova, Inc., a marketing research and
strategy firm. From August 2001 until June 2005, Mr. Hall
served as Senior Vice President of Marketing for Fidelity
Investments Tax-Exempt Retirement Services Company, a provider
of 401(k), 403(b) and other defined contribution retirement
plans and services. From June 1985 to August 2001, Mr. Hall
served in various marketing positions with The
Procter & Gamble Company, most recently as general
manager of the Vidal Sassoon business worldwide.
Joia M. Johnson has served as our Executive Vice
President, General Counsel and Corporate Secretary since January
2007. From May 2000 until January 2007, Ms. Johnson served
as Executive Vice President, General Counsel and Secretary of
RARE Hospitality International, Inc., or RARE
Hospitality, an owner, operator and franchisor of national
chain restaurants. From July 1999 until May 2000, she served as
Vice President, General Counsel and Secretary of RARE
Hospitality, and served as its Vice President and General
Counsel from May 1999 until July 1999. From January 1989 until
May 1999, Ms. Johnson served as Vice President, General
Counsel and Secretary of H.J. Russell & Company, a
real estate development, construction and property management
firm. For six years during her employment with H.J.
Russell & Company, Ms. Johnson served as
Corporate Counsel for Concessions International, Inc., an
airport food and beverage concessionaire and affiliate of H.J.
Russell & Company.
Joan P. McReynolds has served our Executive Vice
President, Chief Customer Officer since the completion of the
spin off in September 2006. From August 2004 until the
completion of the spin off, Ms. McReynolds served as Chief
Customer Officer of Sara Lee Branded Apparel. From May 2003 to
July 2004, Ms. McReynolds served as Chief Customer Officer
for the food, drug and mass channels of customer management for
Sara Lee Branded Apparel. Prior to that, Ms. McReynolds
served as Vice President of sales for Sara Lee Hosiery from
January 1997 to April 2003.
28
Kevin W. Oliver has served as our Executive Vice
President, Human Resources since the completion of the spin off
in September 2006. From January 2006 until the completion of the
spin off, Mr. Oliver served as a Vice President of Sara Lee
and as Senior Vice President, Human Resources of Sara Lee
Branded Apparel. From February 2005 to December 2005,
Mr. Oliver served as Senior Vice President, Human Resources
for Sara Lee Food and Beverage and from August 2001 to January
2005 as Vice President, Human Resources for the Sara Lee Bakery
Group.
W. Howard Upchurch, Jr. has been our Executive Vice
President, General Manager of Domestic Innerwear, since January
2008. From July 2006 to January 2008, Mr. Upchurch was our
Senior Vice President, General Manager of Domestic Female
Innerwear. Mr. Upchurch was President of Sara Lee Intimate
Apparel from August 2004 until June 2006. From October 2003
until July 2004, Mr. Upchurch was Chief Customer Officer of Sara
Lee Branded Apparel. From July 2002 until September 2003, Mr.
Upchurch was President of Sara Lee Hosiery. Mr. Upchurch has
served in various positions with Hanesbrands since 1987.
We own and lease properties supporting our administrative,
manufacturing, distribution and direct outlet activities. We own
our approximately 470,000 square-foot headquarters located
in Winston-Salem, North Carolina, which houses our various
sales, marketing and corporate business functions. Research and
development as well as certain product-design functions also are
located in Winston-Salem, while other design functions are
located in New York City.
As of December 29, 2007, we owned and leased properties in
22 countries, including 62 manufacturing facilities and 26
distribution centers, as well as office facilities. The leases
for these properties expire between December 30, 2007 and
2016, with the exception of some seasonal warehouses that we
lease on a
month-by-month
basis. For more information about our capital lease obligations,
see Managements Discussion and Analysis of Financial
Condition and Results of Operations Future
Contractual Obligations and Commitments.
As of December 29, 2007, we also operated 216 direct outlet
stores in 41 states, most of which are leased under
five-year, renewable lease agreements. We believe that our
facilities, as well as equipment, are in good condition and meet
our current business needs.
The following table summarizes our properties by country as of
December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
|
|
|
Leased
|
|
|
|
|
Properties by Country(1)
|
|
Square Feet
|
|
|
Square Feet
|
|
|
Total
|
|
|
United States
|
|
|
12,074,449
|
|
|
|
3,738,192
|
|
|
|
15,812,641
|
|
Non-U.S.
facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
1,039,289
|
|
|
|
364,651
|
|
|
|
1,403,940
|
|
Dominican Republic
|
|
|
761,762
|
|
|
|
501,403
|
|
|
|
1,263,165
|
|
Honduras
|
|
|
356,279
|
|
|
|
809,165
|
|
|
|
1,165,444
|
|
El Salvador
|
|
|
571,395
|
|
|
|
165,665
|
|
|
|
737,060
|
|
Costa Rica
|
|
|
470,111
|
|
|
|
11,464
|
|
|
|
481,575
|
|
Canada
|
|
|
289,480
|
|
|
|
126,777
|
|
|
|
416,257
|
|
Brazil
|
|
|
|
|
|
|
164,548
|
|
|
|
164,548
|
|
Thailand
|
|
|
131,356
|
|
|
|
4,484
|
|
|
|
135,840
|
|
Belgium
|
|
|
|
|
|
|
101,934
|
|
|
|
101,934
|
|
Argentina
|
|
|
80,938
|
|
|
|
7,301
|
|
|
|
88,239
|
|
China
|
|
|
|
|
|
|
47,495
|
|
|
|
47,495
|
|
10 other countries
|
|
|
|
|
|
|
70,491
|
|
|
|
70,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-U.S.
facilities
|
|
|
3,700,610
|
|
|
|
2,375,378
|
|
|
|
6,075,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
15,775,059
|
|
|
|
6,113,570
|
|
|
|
21,888,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes vacant land. |
29
The following table summarizes the properties primarily used by
our segments as of December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
|
|
|
Leased
|
|
|
|
|
Properties by Segment(1)
|
|
Square Feet
|
|
|
Square Feet
|
|
|
Total
|
|
|
Innerwear
|
|
|
5,977,410
|
|
|
|
2,659,027
|
|
|
|
8,636,437
|
|
Outerwear
|
|
|
6,417,211
|
|
|
|
661,974
|
|
|
|
7,079,185
|
|
Hosiery
|
|
|
1,143,897
|
|
|
|
149,934
|
|
|
|
1,293,831
|
|
International
|
|
|
507,845
|
|
|
|
858,216
|
|
|
|
1,366,061
|
|
Other(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
14,046,363
|
|
|
|
4,329,151
|
|
|
|
18,375,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes vacant land, our outlet stores, property held for sale,
sourcing offices not associated with a particular segment, and
office buildings housing corporate functions. |
|
(2) |
|
Our Other segment is comprised of sales of nonfinished products
such as fabric and certain other materials in the United States
and Latin America in order to maintain asset utilization at
certain manufacturing facilities used by one or more of the
Innerwear, Outerwear, Hosiery or International segments. No
facilities are used primarily by our Other segment. |
|
|
Item 3.
|
Legal
Proceedings
|
Although we are subject to various claims and legal actions that
occur from time to time in the ordinary course of our business,
we are not party to any pending legal proceedings that we
believe could have a material adverse effect on our business,
results of operations, financial condition or cash flows.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of stockholders during the
quarter ended December 29, 2007.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
for our Common Stock
Our common stock currently is traded on the New York Stock
Exchange, or the NYSE, under the symbol
HBI. A when-issued trading market for
our common stock on the NYSE began on August 16, 2006, and
regular way trading of our common stock began on
September 6, 2006. Prior to August 16, 2006, there was
no public market for our common stock. Each share of our common
stock has attached to it one preferred stock purchase right.
These rights initially will be transferable with and only with
the transfer of the underlying share of common stock. We have
not made any unregistered sales of our equity securities.
The following table sets forth the high and low sales prices for
our common stock for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2006
|
|
|
|
|
|
|
|
|
Quarter ended September 30, 2006 (September 6, 2006
through September 30, 2006)
|
|
$
|
23.20
|
|
|
$
|
19.55
|
|
Quarter ended December 30, 2006
|
|
$
|
24.77
|
|
|
$
|
21.70
|
|
2007
|
|
|
|
|
|
|
|
|
Quarter ended March 30, 2007
|
|
$
|
29.65
|
|
|
$
|
23.69
|
|
Quarter ended June 30, 2007
|
|
$
|
29.65
|
|
|
$
|
25.25
|
|
Quarter ended September 29, 2007
|
|
$
|
33.73
|
|
|
$
|
24.00
|
|
Quarter ended December 29, 2007
|
|
$
|
31.58
|
|
|
$
|
25.20
|
|
30
The market price of our common stock has fluctuated since the
spin off and is likely to fluctuate in the future. Changes in
the market price of our common stock may result from, among
other things:
|
|
|
|
|
quarter-to-quarter variations in operating results;
|
|
|
|
operating results being different from analysts estimates;
|
|
|
|
changes in analysts earnings estimates or opinions;
|
|
|
|
announcements of new products or pricing policies by us or our
competitors;
|
|
|
|
announcements of acquisitions by us or our competitors;
|
|
|
|
developments in existing customer relationships;
|
|
|
|
actual or perceived changes in our business strategy;
|
|
|
|
new litigation or developments in existing litigation;
|
|
|
|
sales of large amounts of our common stock;
|
|
|
|
changes in market conditions in the apparel essentials industry;
|
|
|
|
changes in general economic conditions; and
|
|
|
|
fluctuations in the securities markets in general.
|
Holders
of Record
On February 1, 2008, there were 45,377 holders of record of
our common stock. Because many of the shares of our common stock
are held by brokers and other institutions on behalf of
stockholders, we are unable to determine the total number of
stockholders represented by these record holders, but we believe
that there were more than 113,300 beneficial owners of our
common stock as of February 1, 2008.
Dividends
We currently do not pay regular dividends on our outstanding
stock. The declaration of any future dividends and, if declared,
the amount of any such dividends, will be subject to our actual
future earnings, capital requirements, regulatory restrictions,
debt covenants, other contractual restrictions and to the
discretion of our board of directors. Our board of directors may
take into account such matters as general business conditions,
our financial condition and results of operations, our capital
requirements, our prospects and such other factors as our board
of directors may deem relevant.
Issuer
Purchases of Equity Securities
There were no purchases by Hanesbrands during the quarter ended
December 29, 2007 of equity securities that are registered
under Section 12 of the Exchange Act.
31
Performance
Graph
The following graph compares the cumulative total stockholder
return on our common stock with the comparable cumulative return
of the S&P MidCap 400 Index and the S&P 1500 Apparel,
Accessories & Luxury Goods Index. The graph assumes
that $100 was invested in our common stock and each index on
August 11, 2006, the effective date of the registration of
our common stock under Section 12 of the Exchange Act,
although a when-issued trading market for our common
stock did not begin until August 16, 2006, and
regular way trading did not begin until
September 6, 2006. The stock price performance on the
following graph is not necessarily indicative of future stock
price performance.
COMPARISON
OF CUMULATIVE TOTAL RETURN
Compliance
with Certain New York Stock Exchange Requirements
As required by the rules of the New York Stock Exchange, Richard
A. Noll, our Chief Executive Officer must certify to the New
York Stock Exchange each year that he is not aware of any
violation by Hanesbrands of New York Stock Exchange corporate
governance listing standards as of the date of his
certification, qualifying the certification to the extent
necessary. Mr. Nolls certification for the six months
ended December 30, 2006 was submitted to the New York Stock
Exchange and did not contain any qualifications. We are filing,
as exhibits to this Annual Report on
Form 10-K,
the certifications required by Section 302 of the
Sarbanes-Oxley Act of 2002.
Equity
Compensation Plan Information
The following table provides information about our equity
compensation plans as of December 29, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to
|
|
|
Weighted Average
|
|
|
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
Number of Securities
|
|
|
|
of Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Remaining Available for
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Future Issuance
|
|
|
Equity compensation plans approved by security holders
|
|
|
5,286,828
|
|
|
$
|
23.41
|
|
|
|
7,278,674
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,286,828
|
|
|
$
|
23.41
|
|
|
|
7,278,674
|
|
32
|
|
Item 6.
|
Selected
Financial Data
|
The following table presents our selected historical financial
data. The statement of income data for the year ended
December 29, 2007, the six-month period ended
December 30, 2006, the year ended July 1, 2006, and
the year ended July 2, 2005 and the balance sheet data as
of December 29, 2007 and December 30, 2006 have been
derived from our audited Consolidated Financial Statements
included elsewhere in this Annual Report on
Form 10-K.
The statement of income data for the years ended July 3,
2004 and June 28, 2003 and the balance sheet data as of
July 1, 2006, July 2, 2005, July 3, 2004 and
June 28, 2003 has been derived from our consolidated
financial statements not included in this Annual Report on
Form 10-K.
In October 2006, our Board of Directors approved a change in our
fiscal year end from the Saturday closest to June 30 to the
Saturday closest to December 31. As a result of this
change, our consolidated financial statements include
presentation of the transition period beginning on July 2,
2006 and ending on December 30, 2006.
Our historical financial data for periods prior to our spin off
from Sara Lee on September 5, 2006 is not necessarily
indicative of our future performance or what our financial
position and results of operations would have been if we had
operated as a separate, stand-alone entity during all of the
periods shown. The data should be read in conjunction with our
historical financial statements and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
July 3,
|
|
|
June 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(amounts in thousands, except per share data)
|
|
|
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
4,474,537
|
|
|
$
|
2,250,473
|
|
|
$
|
4,472,832
|
|
|
$
|
4,683,683
|
|
|
$
|
4,632,741
|
|
|
$
|
4,669,665
|
|
Cost of sales
|
|
|
3,033,627
|
|
|
|
1,530,119
|
|
|
|
2,987,500
|
|
|
|
3,223,571
|
|
|
|
3,092,026
|
|
|
|
3,010,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,440,910
|
|
|
|
720,354
|
|
|
|
1,485,332
|
|
|
|
1,460,112
|
|
|
|
1,540,715
|
|
|
|
1,659,282
|
|
Selling, general and administrative expenses
|
|
|
1,040,754
|
|
|
|
547,469
|
|
|
|
1,051,833
|
|
|
|
1,053,654
|
|
|
|
1,087,964
|
|
|
|
1,126,065
|
|
Gain on curtailment of postretirement benefits
|
|
|
(32,144
|
)
|
|
|
(28,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
43,731
|
|
|
|
11,278
|
|
|
|
(101
|
)
|
|
|
46,978
|
|
|
|
27,466
|
|
|
|
(14,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
388,569
|
|
|
|
190,074
|
|
|
|
433,600
|
|
|
|
359,480
|
|
|
|
425,285
|
|
|
|
547,614
|
|
Other expenses
|
|
|
5,235
|
|
|
|
7,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
199,208
|
|
|
|
70,753
|
|
|
|
17,280
|
|
|
|
13,964
|
|
|
|
24,413
|
|
|
|
(2,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit)
|
|
|
184,126
|
|
|
|
111,920
|
|
|
|
416,320
|
|
|
|
345,516
|
|
|
|
400,872
|
|
|
|
550,000
|
|
Income tax expense (benefit)
|
|
|
57,999
|
|
|
|
37,781
|
|
|
|
93,827
|
|
|
|
127,007
|
|
|
|
(48,680
|
)
|
|
|
121,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
126,127
|
|
|
$
|
74,139
|
|
|
$
|
322,493
|
|
|
$
|
218,509
|
|
|
$
|
449,552
|
|
|
$
|
428,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic(1)
|
|
$
|
1.31
|
|
|
$
|
0.77
|
|
|
$
|
3.35
|
|
|
$
|
2.27
|
|
|
$
|
4.67
|
|
|
$
|
4.45
|
|
Earnings per share diluted(2)
|
|
$
|
1.30
|
|
|
$
|
0.77
|
|
|
$
|
3.35
|
|
|
$
|
2.27
|
|
|
$
|
4.67
|
|
|
$
|
4.45
|
|
Weighted average shares basic(1)
|
|
|
95,936
|
|
|
|
96,309
|
|
|
|
96,306
|
|
|
|
96,306
|
|
|
|
96,306
|
|
|
|
96,306
|
|
Weighted average shares diluted(2)
|
|
|
96,741
|
|
|
|
96,620
|
|
|
|
96,306
|
|
|
|
96,306
|
|
|
|
96,306
|
|
|
|
96,306
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
July 3,
|
|
|
June 28,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
174,236
|
|
|
$
|
155,973
|
|
|
$
|
298,252
|
|
|
$
|
1,080,799
|
|
|
$
|
674,154
|
|
|
$
|
289,816
|
|
Total assets
|
|
|
3,439,483
|
|
|
|
3,435,620
|
|
|
|
4,903,886
|
|
|
|
4,257,307
|
|
|
|
4,402,758
|
|
|
|
3,915,573
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
2,315,250
|
|
|
|
2,484,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
146,347
|
|
|
|
271,168
|
|
|
|
49,987
|
|
|
|
53,559
|
|
|
|
35,934
|
|
|
|
49,251
|
|
Total noncurrent liabilities
|
|
|
2,461,597
|
|
|
|
2,755,168
|
|
|
|
49,987
|
|
|
|
53,559
|
|
|
|
35,934
|
|
|
|
49,251
|
|
Total stockholders or parent companies equity
|
|
|
288,904
|
|
|
|
69,271
|
|
|
|
3,229,134
|
|
|
|
2,602,362
|
|
|
|
2,797,370
|
|
|
|
2,237,448
|
|
|
|
|
(1) |
|
Prior to the spin off on September 5, 2006, the number of
shares used to compute basic and diluted earnings per share is
96,306, which was the number of shares of our common stock
outstanding on September 5, 2006. |
|
(2) |
|
Subsequent to the spin off on September 5, 2006, the number
of shares used to compute diluted earnings per share is based on
the number of shares of our common stock outstanding, plus the
potential dilution that could occur if restricted stock units
and options granted under our equity-based compensation
arrangements were exercised or converted into common stock. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This managements discussion and analysis of financial
condition and results of operations, or MD&A, contains
forward-looking statements that involve risks and uncertainties.
Please see Forward-Looking Statements and Risk
Factors in this Annual Report on
Form 10-K
for a discussion of the uncertainties, risks and assumptions
associated with these statements. This discussion should be read
in conjunction with our historical financial statements and
related notes thereto and the other disclosures contained
elsewhere in this Annual Report on
Form 10-K.
On October 26, 2006, our Board of Directors approved a
change in our fiscal year end from the Saturday closest to June
30 to the Saturday closest to December 31. We refer to the
resulting transition period from July 2, 2006 to
December 30, 2006 in this Annual Report on
Form 10-K
as the six months ended December 30, 2006. The results of
operations for the periods reflected herein are not necessarily
indicative of results that may be expected for future periods,
and our actual results may differ materially from those
discussed in the forward-looking statements as a result of
various factors, including but not limited to those listed under
Risk Factors in this Annual Report on
Form 10-K
and included elsewhere in this Annual Report on
Form 10-K.
MD&A is a supplement to our Consolidated Financial
Statements and notes thereto included elsewhere in this Annual
Report on
Form 10-K,
and is provided to enhance your understanding of our results of
operations and financial condition. Our MD&A is organized
as follows:
|
|
|
|
|
Overview. This section provides a general
description of our company and operating segments, business and
industry trends, our key business strategies and background
information on other matters discussed in this MD&A.
|
|
|
|
Components of Net Sales and Expense. This
section provides an overview of the components of our net sales
and expense that are key to an understanding of our results of
operations.
|
|
|
|
Highlights from the Year Ended December 29,
2007. This section discusses some of the
highlights of our performance and activities during 2007.
|
|
|
|
Consolidated Results of Operations and Operating Results by
Business Segment. These sections provide our
analysis and outlook for the significant line items on our
statements of income, as well as other information that we deem
meaningful to an understanding of our results of operations on
both a consolidated basis and a business segment basis.
|
34
|
|
|
|
|
Liquidity and Capital Resources. This section
provides an analysis of our liquidity and cash flows, as well as
a discussion of our commitments that existed as of
December 29, 2007.
|
|
|
|
Critical Accounting Policies and
Estimates. This section discusses the accounting
policies that we consider important to the evaluation and
reporting of our financial condition and results of operations,
and whose application requires significant judgments or a
complex estimation process.
|
|
|
|
Recently Issued Accounting Standards. This
section provides a summary of the most recent authoritative
accounting standards and guidance that we will be required to
adopt in a future period.
|
Overview
Our
Company
We are a consumer goods company with a portfolio of leading
apparel brands, including Hanes, Champion, Playtex, Bali,
Just My Size, barely there and Wonderbra. We design,
manufacture, source and sell a broad range of apparel essentials
such as t-shirts, bras, panties, mens underwear,
kids underwear, socks, hosiery, casualwear and activewear.
According to NPD, our brands hold either the number one or
number two U.S. market position by sales in most product
categories in which we compete, on a rolling year-end basis as
of December 31, 2007.
Our
Segments
Our operations are managed in five operating segments, each of
which is a reportable segment for financial reporting purposes:
Innerwear, Outerwear, Hosiery, International and Other. These
segments are organized principally by product category and
geographic location. Management of each segment is responsible
for the assets and operations of these businesses.
|
|
|
|
|
Innerwear. The Innerwear segment focuses on
core apparel essentials, and consists of products such as
womens intimate apparel, mens underwear, kids
underwear, socks, thermals and sleepwear, marketed under
well-known brands that are trusted by consumers. We are an
intimate apparel category leader in the United States with our
Hanes, Playtex, Bali, Just My Size, barely there and
Wonderbra brands. We are also a leading manufacturer and
marketer of mens underwear and kids underwear under
the Hanes and Champion brand names. Our net sales
for the year ended December 29, 2007 from our Innerwear
segment were $2.6 billion, representing approximately 57%
of total segment net sales.
|
|
|
|
Outerwear. We are a leader in the casualwear
and activewear markets through our Hanes, Champion and
Just My Size brands, where we offer products such as
t-shirts and fleece. Our casualwear lines offer a range of
quality, comfortable clothing for men, women and children
marketed under the Hanes and Just My Size brands.
The Just My Size brand offers casual apparel designed
exclusively to meet the needs of plus-size women. In addition to
activewear for men and women, Champion provides uniforms
for athletic programs and includes an apparel program, C9 by
Champion, at Target stores. We also license our Champion
name for collegiate apparel and footwear. We also supply our
t-shirts, sportshirts and fleece products primarily to
wholesalers, who then resell to screen printers and embellishers
through brands such as Hanes, Champion and
Outerbanks. Our net sales for the year ended
December 29, 2007 from our Outerwear segment were
$1.2 billion, representing approximately 27% of total
segment net sales.
|
|
|
|
Hosiery. We are the leading marketer of
womens sheer hosiery in the United States. We compete in
the hosiery market by striving to offer superior values and
executing integrated marketing activities, as well as focusing
on the style of our hosiery products. We market hosiery products
under our Hanes, Leggs and Just My Size
brands. Our net sales for the year ended December 29,
2007 from our Hosiery segment were $266 million,
representing approximately 6% of total segment net sales. We
expect the trend of declining hosiery sales to continue
consistent with the overall decline in the industry (although
the decline has slowed in recent years) and with shifts in
consumer preferences.
|
35
|
|
|
|
|
International. International includes products
that span across the Innerwear, Outerwear and Hosiery reportable
segments and include products marketed under the Hanes,
Champion, Wonderbra, Playtex, Rinbros, Bali and Stedman
brands. Our net sales for the year ended December 29,
2007 from our International segment were $422 million,
representing approximately 9% of total segment net sales and
included sales in Latin America, Asia, Canada and Europe. Japan,
Canada and Mexico are our largest international markets, and we
also have sales offices in India and China.
|
|
|
|
Other. Our net sales for the year ended
December 29, 2007 in our Other segment were
$57 million, representing approximately 1% of total segment
net sales and are comprised of sales of nonfinished products
such as fabric and certain other materials in the United States
and Latin America in order to maintain asset utilization at
certain manufacturing facilities.
|
Our operating results are subject to some variability.
Generally, our diverse range of product offerings helps mitigate
the impact of seasonal changes in demand for certain items.
Sales are typically higher in the last two quarters (July to
December) of each fiscal year. Socks, hosiery and fleece
products generally have higher sales during this period as a
result of cooler weather, back-to-school shopping and holidays.
Sales levels in a period are also impacted by customers
decisions to increase or decrease their inventory levels in
response to anticipated consumer demand. Our customers may
cancel orders, change delivery schedules or change the mix of
products ordered with minimal notice to us. Our results of
operations are also impacted by fluctuations and volatility in
the price of cotton and the timing of actual spending for our
media, advertising and promotion expenses. Media, advertising
and promotion expenses may vary from period to period during a
fiscal year depending on the timing of our advertising campaigns
for retail selling seasons and product introductions. Our costs
for cotton yarn and cotton-based textiles vary based upon the
fluctuating cost of cotton, which is affected by weather,
consumer demand, speculation on the commodities market, the
relative valuations and fluctuations of the currencies of
producer versus consumer countries and other factors that are
generally unpredictable and beyond our control. While we do
enter into short-term supply agreements and hedges in an attempt
to protect our business from the volatility of the market price
of cotton, our business can be affected by dramatic movements in
cotton prices, although cotton represents only 6% of our cost of
sales. Cotton prices, which were approximately 50 cents per
pound in 2006, returned to the ten year historical average of
approximately 56 cents per pound in 2007. Taking into
consideration the agreements that we currently have in effect
and cotton costs currently included in inventory, we expect our
cost of cotton to average 62 cents per pound through August
2008, with the first quarter being lower and the third quarter
being higher.
Business
and Industry Trends
Our businesses are highly competitive and evolving rapidly.
Competition generally is based upon price, brand name
recognition, product quality, selection, service and purchasing
convenience. While the majority of our core styles continue from
year to year, with variations only in color, fabric or design
details, other products such as intimate apparel and sheer
hosiery have a heavier emphasis on style and innovation. Our
businesses face competition today from other large corporations
and foreign manufacturers, as well as department stores,
specialty stores and other retailers that market and sell
apparel essentials products under private labels that compete
directly with our brands.
Our distribution channels include direct to consumer sales at
our outlet stores, national chains and department stores and
warehouse clubs, mass-merchandise outlets and international
sales. For the year ended December 29, 2007, approximately
46% of our net sales were to mass merchants, 19% were to
national chains and department stores, 8% were direct to
consumers, 9% were in our International segment and 18% were to
other retail channels such as embellishers, specialty retailers,
warehouse clubs and sporting goods stores.
The retailers to which we sell our products have grown larger,
partly due to retailer consolidation, and, as such, the number
of retailers to which we sell our products has declined. For the
year ended December 29, 2007, for example, our top ten
customers accounted for 62% of our net sales and our top
customer, Wal-Mart, accounted for over $1.2 billion of our
sales. Our largest customers in the year ended December 29,
2007 were Wal-Mart, Target and Kohls, which accounted for
27%, 14% and 6% of total sales, respectively. The growth in
retailers can create pricing pressures as our customers grow
larger and seek to have greater concessions in
36
their purchase of our products, while they can be increasingly
demanding that we provide them with some of our products on an
exclusive basis. To counteract these effects, it has become
increasingly important to increase operational efficiency and
lower costs. As discussed below, for example, we are moving more
of our supply chain to lower cost locations to lower the costs
of our operational structure.
Anticipating changes in and managing our operations in response
to consumer preferences remains an important element of our
business. In recent years, we have experienced changes in our
net sales, revenues and cash flows in accordance with changes in
consumer preferences and trends. For example, we expect the
trend of declining hosiery sales to continue consistent with the
overall decline in the industry (although the decline has slowed
in recent years) and with shifts in consumer preferences. The
Hosiery segment only comprised 6% of our net sales in the year
ended December 29, 2007 however, and as a result, the
decline in the Hosiery segment has not had a significant impact
on our net sales, revenues or cash flows. Generally, we manage
the Hosiery segment for cash, placing an emphasis on reducing
our cost structure and managing cash efficiently.
Our
Key Business Strategies
Our core strategies are to build our largest, strongest brands
in core categories by driving innovation in key items, to
continually reduce our costs by consolidating our organization
and globalizing our supply chain and to use our strong,
consistent cash flows to fund business growth, supply-chain
reorganization and debt reduction and to repurchase shares to
offset dilution. Specifically, we intend to focus on the
following strategic initiatives:
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Increase the Strength of Our Brands with
Consumers. Driving growth platforms across
categories is a major element of our strategy as it enables us
to meet key consumer needs and leverage advertising dollars. We
intend to increase our level of marketing support behind our key
brands with targeted, effective advertising and marketing
campaigns. For example, In 2007, we launched a number of new
advertising and marketing initiatives. We featured Jennifer Love
Hewitt in a new television, print and online advertising
campaign that began in March 2007 in support of the launch of
the Hanes All-Over Comfort Bra with ComfortSoft straps.
The campaign includes new television, print and online ads. We
launched our latest Look Who advertising campaign
featuring Cuba Gooding Jr. and Michael Jordan in July 2007, in
support of the new Hanes ComfortSoft Collection for Men,
which includes the Hanes ComfortSoft undershirt and
ComfortSoft underwear. Also in July 2007, we launched The
Hanes ComfortZone Tour, a mobile marketing initiative
focused helping men experience ComfortSoft product
innovation first hand. In November 2007, we launched the first
campaign for our Champion brand since 2003, a national
advertising campaign featuring a new tagline, How You
Play, designed to capture the everyday moments of fun and
sport in a series of cool and hip lifestyle images. In the
Spring of 2007, we launched a new Live Beautifully
campaign for our Bali brand, which features Bali bras and
panties from its Passion for Comfort, Seductive Curve
and Cotton Creations lines. We launched an innovative
and expressive advertising and marketing campaign called
Girl Talk in September 2007 in which confident,
everyday women talk about their breasts, in support of our
Playtex 18 Hour and Playtex Secrets product lines.
In October 2007, we announced a
10-year
strategic alliance with The Walt Disney Company that includes
basic apparel exclusivity for the Hanes and Champion
brands, product co-branding, attraction sponsorships and
other brand visibility and signage at Walt Disney Parks and
Resorts properties. Our ability to react to changing customer
needs and industry trends will continue to be key to our
success. Our design, research and product development teams, in
partnership with our marketing teams, drive our efforts to bring
innovations to market. We intend to leverage our insights into
consumer demand in the apparel essentials industry to develop
new products within our existing lines and to modify our
existing core products in ways that make them more appealing,
addressing changing customer needs and industry trends.
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Strengthen Our Retail Relationships. We intend
to expand our market share at large, national retailers by
applying our extensive category and product knowledge,
leveraging our use of multi-functional customer management teams
and developing new customer-specific programs such as C9 by
Champion for Target. Our goal is to strengthen and deepen
our existing strategic relationships with retailers and
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37
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develop new strategic relationships. Additionally, we plan to
expand distribution by providing manufacturing and production of
apparel essentials products to specialty stores and other
distribution channels, such as direct to consumer through the
Internet.
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Develop a Lower-Cost Efficient Supply
Chain. As a provider of high-volume products, we
are continually seeking to improve our cost-competitiveness and
operating flexibility through supply chain initiatives. Over the
next several years, we will continue to transition additional
parts of our supply chain to lower-cost locations in Central
America, the Caribbean Basin and Asia in an effort to optimize
our cost structure. We intend to continue to self-manufacture
core products where we can protect or gain a significant cost
advantage through scale or in cases where we seek to protect
proprietary processes and technology. We plan to continue to
selectively source product categories that do not meet these
criteria from third-party manufacturers. We expect that in
future years our supply chain will become more balanced across
the Eastern and Western Hemispheres. We expect that these
changes in our supply chain will result in significant cost
efficiencies and increased asset utilization. Our restructuring
activities are discussed in more detail below.
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Create a More Integrated, Focused
Company. Historically, we have had a
decentralized operating structure, with many distinct operating
units. We are in the process of consolidating functions, such as
purchasing, finance, manufacturing/sourcing, planning, marketing
and product development, across all of our product categories in
the United States. We also are in the process of integrating our
distribution operations and information technology systems. We
believe that these initiatives will streamline our operations,
improve our inventory management, reduce costs, standardize
processes and allow us to distribute our products more
effectively to retailers. We expect that our initiative to
integrate our technology systems also will provide us with more
timely information, increasing our ability to allocate capital
and manage our business more effectively. We expect to continue
to incur costs associated with the integration of these systems
across our company over the next several years. This process
involves the integration or replacement of eight independent
information technology platforms so that our business functions
are served by fewer platforms.
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Supply
Chain Consolidation and Globalization
Over the past several years, we have undertaken a variety of
restructuring efforts designed to improve operating efficiencies
and lower costs. We have closed plant locations, reduced our
workforce, and relocated some of our manufacturing capacity to
lower cost locations in Central America and Asia. For example,
during the year ended December 29, 2007, in furtherance of
our efforts to execute our consolidation and globalization
strategy, we approved actions to close 17 manufacturing
facilities and three distribution centers affecting
6,213 employees in the Dominican Republic, Mexico, the
United States, Brazil and Canada. In addition, 428 management
and administrative positions are being eliminated, with the
majority of these positions based in the United States. We also
have recognized accelerated depreciation with respect to owned
or leased assets associated with 17 manufacturing facilities and
five distribution centers which we anticipate closing in the
next three to five years as part of our consolidation and
globalization strategy. While we believe that these efforts have
had and will continue to have a beneficial impact on our
operational efficiency and cost structure, we have incurred
significant costs to implement these initiatives. In particular,
we have recorded charges for severance and other
employment-related obligations relating to workforce reductions,
as well as payments in connection with lease and other contract
terminations. These amounts are included in the Cost of
sales, Restructuring and Selling,
general and administrative expenses lines of our
statements of income.
We acquired our second offshore textile plant, the
1,300-employee textile manufacturing operations of Industrias
Duraflex, S.A. de C.V., in San Juan Opico, El Salvador.
This acquisition provides a textile base in Central America from
which to expand and leverage our large scale as well as supply
our sewing network throughout Central America. Also, we
announced plans to build a textile production plant in Nanjing,
China, which will be our first company-owned textile production
facility in Asia. The Nanjing textile facility will enable us to
expand and leverage our production scale in Asia as we balance
our supply chain across hemispheres. In December 2007, we
acquired the 900-employee sheer hosiery facility in Las Lourdes,
El Salvador of Inversiones Bonaventure, S.A. de C.V. For the
past 12 years, these operations had been a primary contract
sewing operation
38
for Hanes and Leggs hosiery products. The
acquisition streamlines a critical part of our overall hosiery
supply chain and is part of our strategy to operate larger,
company-owned production facilities.
As a result of the restructuring actions taken since our spin
off from Sara Lee on September 5, 2006, our cost structure
was reduced and efficiencies improved, generating savings of
$21 million during the year ended December 29, 2007.
Of the seven manufacturing facilities and distribution centers
approved for closure in 2006, two were closed in 2006 and five
were closed in 2007. Of the 20 manufacturing facilities and
distribution centers approved for closure in 2007, 10 were
closed in 2007 and 10 are expected to close in 2008. For more
information about our restructuring actions, see Note 5,
titled Restructuring to our Consolidated Financial
Statements included in this Annual Report on
Form 10-K.
As further plans are developed and approved by management and in
some cases our board of directors, we expect to recognize
additional restructuring costs to eliminate duplicative
functions within the organization and transition a significant
portion of our manufacturing capacity to lower-cost locations.
As a result of these efforts, we expect to incur approximately
$250 million in restructuring and related charges over the
three year period following the spin off from Sara Lee, of which
approximately half is expected to be noncash. As of
December 29, 2007, we have recognized approximately
$116 million in restructuring and related charges related
to these efforts. Of these charges, $43 million relates to
employee termination and other benefits, $61 million
relates to accelerated depreciation of buildings and equipment
for facilities that have been or will be closed and
$12 million relates to lease termination costs.
Components
of Net Sales and Expense
Net
sales
We generate net sales by selling apparel essentials such as
t-shirts, bras, panties, mens underwear, kids
underwear, socks, hosiery, casualwear and activewear. Our net
sales are recognized net of discounts, coupons, rebates,
volume-based incentives and cooperative advertising costs. We
recognize revenue when (i) there is persuasive evidence of
an arrangement (ii) the sales price is fixed or
determinable, (iii) title and the risks of ownership have
been transferred to the customer and (iv) collection of the
receivable is reasonably assured, which occurs primarily upon
shipment. Net sales include an estimate for returns and
allowances based upon historical return experience. We also
offer a variety of sales incentives to resellers and consumers
that are recorded as reductions to net sales.
Cost
of sales
Our cost of sales includes the cost of manufacturing finished
goods, which consists of labor, raw materials such as cotton and
petroleum-based products and overhead costs such as depreciation
on owned facilities and equipment. Our cost of sales also
includes finished goods sourced from third-party manufacturers
that supply us with products based on our designs as well as
charges for slow moving or obsolete inventories. Rebates,
discounts and other cash consideration received from a vendor
related to inventory purchases are reflected in cost of sales
when the related inventory item is sold. Our costs of sales do
not include shipping costs, comprised of payments to third party
shippers, or handling costs, comprised of warehousing costs in
our distribution facilities, and thus our gross margins may not
be comparable to those of other entities that include such costs
in cost of sales.
Selling,
general and administrative expenses
Our selling, general and administrative expenses include
selling, advertising, costs of shipping, handling and
distribution to our customers, research and development, rent on
leased facilities, depreciation on owned facilities and
equipment and other general and administrative expenses. Also
included for periods presented prior to the spin off on
September 5, 2006 are allocations of corporate expenses
that consist of expenses for business insurance, medical
insurance, employee benefit plan amounts and, because we were
part of Sara Lee those periods, allocations from Sara Lee for
certain centralized administration costs for treasury, real
estate, accounting, auditing, tax, risk management, human
resources and benefits administration. These allocations of
centralized administration costs were determined on bases that
we and Sara Lee considered to be reasonable
39
and take into consideration and include relevant operating
profit, fixed assets, sales and payroll. Selling, general and
administrative expenses also include management payroll,
benefits, travel, information systems, accounting, insurance and
legal expenses.
Restructuring
We have from time to time closed facilities and reduced
headcount, including in connection with previously announced
restructuring and business transformation plans. We refer to
these activities as restructuring actions. When we decide to
close facilities or reduce headcount, we take estimated charges
for such restructuring, including charges for exited
non-cancelable leases and other contractual obligations, as well
as severance and benefits. If the actual charge is different
from the original estimate, an adjustment is recognized in the
period such change in estimate is identified.
Other
expenses
Our other expenses include charges such as losses on early
extinguishment of debt and certain other non-operating items.
Interest
expense, net
As part of the spin off from Sara Lee on September 5, 2006,
we incurred $2.6 billion of debt in the form of the Senior
Secured Credit Facility, the Second Lien Credit Facility and a
bridge loan facility (the Bridge Loan Facility),
$2.4 billion of which we paid to Sara Lee. In December
2006, we issued $500 million of floating rate senior notes
and the proceeds were used to repay all amounts outstanding
under the Bridge Loan Facility. On November 27, 2007, we
entered into the Receivables Facility which provides for up to
$250 million in funding accounted for as a secured
borrowing, all of which we borrowed and used to repay a portion
of the Senior Secured Credit Facility. As a result, our interest
expense in the current and future periods will be substantially
higher than in periods prior to our spin off from Sara Lee. As
part of our historical relationship with Sara Lee, we engaged in
intercompany borrowings. We are no longer able to borrow from
Sara Lee.
Our interest expense is net of interest income. Interest income
is the return we earned on our cash and cash equivalents and,
historically, on money we loaned to Sara Lee as part of its
corporate cash management practices. Our cash and cash
equivalents are invested in highly liquid investments with
original maturities of three months or less.
Income
tax expense (benefit)
Our effective income tax rate fluctuates from period to period
and can be materially impacted by, among other things:
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changes in the mix of our earnings from the various
jurisdictions in which we operate;
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the tax characteristics of our earnings;
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the timing and amount of earnings of foreign subsidiaries that
we repatriate to the United States, which may increase our tax
expense and taxes paid;
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the timing and results of any reviews of our income tax filing
positions in the jurisdictions in which we transact
business; and
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the expiration of the tax incentives for manufacturing
operations in Puerto Rico, which were no longer in effect after
July 1, 2006.
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Inflation
and Changing Prices
We believe that changes in net sales and in net income that have
resulted from inflation or deflation have not been material
during the periods presented. There is no assurance, however,
that inflation or deflation will not materially affect us in the
future. Cotton is the primary raw material we use to manufacture
many of our
40
products and is subject to fluctuations in prices. Further
discussion of the market sensitivity of cotton is included in
Quantitative and Qualitative Disclosures about Market
Risk.
Highlights
from the Year Ended December 29, 2007
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Total net sales in the year ended December 29, 2007 were
higher by $71 million at $4.5 billion compared to the
year ended December 30, 2006. Net sales for three of our
four largest brands, Hanes, Champion and Bali,
all increased in 2007.
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Operating profit was $389 million in the year ended
December 29, 2007, up from $366 million in the year
ended December 30, 2006. The higher operating profit was a
result of increased sales, cost reduction initiatives and lower
spin off and related charges which more than offset higher costs
associated with investments in our strategic initiatives and
higher restructuring and related charges.
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Diluted earnings per share were $1.30 in the year ended
December 29, 2007, compared with $2.16 in the year ended
December 30, 2006. The full year decline reflected higher
interest expense as a result of our independent structure since
the spin off from Sara Lee on September 5, 2006, higher
restructuring costs and a higher tax rate.
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Using cash flow from operating activities, we repaid a net
$178 million of long-term debt, repurchased
$44 million of company stock, and voluntarily contributed
$48 million to our qualified pension plans during 2007.
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We completed the final separation of pension plan assets and
liabilities from those of our former parent in 2007. As a
result, our U.S. qualified pension plans are approximately
97% funded as of December 29, 2007.
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We approved actions to close 17 manufacturing facilities and
three distribution centers in the Dominican Republic, Mexico,
the United States, Brazil and Canada during 2007. In addition,
we completed previously announced restructuring actions in 2007.
The net impact of these actions was to reduce income before
taxes for the year ended December 29, 2007 by
$83 million.
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In February 2007, we entered into a first amendment to our
senior secured credit facility with our lenders which primarily
lowered the borrowing applicable margin with respect to the Term
B loan facility from 2.25% to 1.75% on LIBOR based loans and
from 1.25% to 0.75% on Base Rate loans.
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In August 2007, we acquired our second offshore textile plant,
the 1,300-employee textile manufacturing operations of
Industrias Duraflex, S.A. de C.V., in San Juan Opico, El
Salvador. This acquisition provides a textile base in Central
America from which to expand and leverage our large scale as
well as supply our sewing network throughout Central America.
Also, we announced plans in October 2007 to build a textile
production plant in Nanjing, China, which will be our first
company-owned textile production facility in Asia. The Nanjing
textile facility will enable us to expand and leverage our
production scale in Asia as we balance our supply chain across
hemispheres.
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In October 2007, we announced a
10-year
strategic alliance with The Walt Disney Company that includes
basic apparel exclusivity for the Hanes and Champion
brands, product co-branding, attraction sponsorships and
other brand visibility and signage at Disney properties. The
alliance included the naming rights for the stadium at
Disneys Wide World of Sports Complex, now known as
Champion Stadium.
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In November 2007, we entered into the Receivables Facility,
which provides for up to $250 million in funding accounted
for as a secured borrowing, limited to the availability of
eligible receivables, and is secured by certain domestic trade
receivables and which we expect will reduce our overall
borrowing costs in the future.
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In December 2007, we acquired the 900-employee sheer hosiery
facility in Las Lourdes, El Salvador of Inversiones Bonaventure,
S.A. de C.V. For the past 12 years, these operations had
been a primary contract sewing operation for Hanes and
Leggs hosiery products. The acquisition streamlines
a critical
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41
part of our overall hosiery supply chain and is part of our
strategy to operate larger, company-owned production facilities.
Consolidated
Results of Operations Year Ended December 29,
2007 Compared with Twelve Months Ended December 30,
2006
The information presented below for the year ended
December 29, 2007 was derived from our consolidated
financial statements. The unaudited information presented for
the twelve months ended December 30, 2006 (which twelve
month period we refer to as 2006 in this
Consolidated Results of Operation Year Ended
December 29, 2007 Compared with Twelve Months Ended
December 30, 2006 section and the section entitled
Operating Results by Business Segment Year
Ended December 29, 2007 Compared with Twelve Months Ended
December 30, 2006) is presented due to the change in
our fiscal year end and was derived by combining the six months
ended July 1, 2006 and the six months ended
December 30, 2006.
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Year Ended
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Year Ended
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December 29,
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December 30,
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Higher
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Percent
|
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|
2007
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2006
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|
(Lower)
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Change
|
|
|
|
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|
(unaudited)
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|
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|
|
|
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(dollars in thousands)
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Net sales
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|
$
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4,474,537
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|
$
|
4,403,466
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|
|
$
|
71,071
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|
|
|
1.6
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%
|
Cost of sales
|
|
|
3,033,627
|
|
|
|
2,960,759
|
|
|
|
72,868
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,440,910
|
|
|
|
1,442,707
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|
|
|
(1,797
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)
|
|
|
(0.1
|
)
|
Selling, general and administrative expenses
|
|
|
1,040,754
|
|
|
|
1,093,436
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|
|
|
(52,682
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)
|
|
|
(4.8
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)
|
Gain on curtailment of postretirement benefits
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|
|
(32,144
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)
|
|
|
(28,467
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)
|
|
|
3,677
|
|
|
|
12.9
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|
Restructuring
|
|
|
43,731
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|
|
|
11,516
|
|
|
|
32,215
|
|
|
|
279.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating profit
|
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|
388,569
|
|
|
|
366,222
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|
|
|
22,347
|
|
|
|
6.1
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|
Other expenses
|
|
|
5,235
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|
|
|
7,401
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|
|
|
(2,166
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)
|
|
|
(29.3
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)
|
Interest expense, net
|
|
|
199,208
|
|
|
|
79,621
|
|
|
|
119,587
|
|
|
|
150.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income before income tax expense
|
|
|
184,126
|
|
|
|
279,200
|
|
|
|
(95,074
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)
|
|
|
(34.1
|
)
|
Income tax expense
|
|
|
57,999
|
|
|
|
71,184
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|
|
|
(13,185
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)
|
|
|
(18.5
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income
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|
$
|
126,127
|
|
|
$
|
208,016
|
|
|
$
|
(81,889
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)
|
|
|
(39.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
4,474,537
|
|
|
$
|
4,403,466
|
|
|
$
|
71,071
|
|
|
|
1.6
|
%
|
Consolidated net sales were higher by $71 million or 1.6%
in 2007 compared to 2006. Our Outerwear, International and Other
segment net sales were higher by $68 million (5.9%),
$22 million (5.4%) and $12 million (27.4%),
respectively, and were offset by lower segment net sales in
Innerwear of $18 million (0.7%) and Hosiery of
$12 million (4.3%).
The overall higher net sales were primarily due to double digit
growth in sales volume in Champion brand sales, growth in
Hanes brand casualwear, socks, sleepwear, intimate
apparel and mens underwear sales and Bali brand
intimate apparel sales. Our Champion brand sales have
increased by double-digits in each of the last three years. The
higher net sales were offset primarily by lower sales of
promotional t-shirts sold primarily through our embellishment
channel, lower Playtex brand intimate apparel sales,
lower Hanes brand kids underwear sales and lower
licensed mens underwear sales in the department store
channel.
Our strategy of investing in our largest and strongest brands is
generating growth. In 2007, we launched a number of new
advertising and marketing initiatives for our top brands,
including our Hanes ComfortSoft campaigns, Bali
Passion for Comfort, Playtex Girl Talk and most
recently our Champion How you Play
42
advertising campaign which is the first campaign for the brand
since 2003. We also announced a
10-year
strategic alliance with The Walt Disney Company that includes
basic apparel exclusivity for the Hanes and Champion
brands, product co-branding, attraction sponsorships and
other brand visibility and signage at Disney properties. The
alliance included the naming rights for the stadium at
Disneys Wide World of Sports Complex, now known as
Champion Stadium.
Net sales in the Hosiery segment were lower primarily due to
lower sales of the Leggs brand to mass retailers
and food and drug stores. We expect the trend of declining
hosiery sales to continue consistent with the overall decline in
the industry (although the decline has slowed in recent years)
and with shifts in consumer preferences. The higher net sales
from our Other segment primarily resulted from an immaterial
change in the way we recognized sales to third party suppliers
in 2006. The full year change was reflected in 2006 with a
$5 million impact on net sales and minimal impact on net
income.
The changes in foreign currency exchange rates had a favorable
impact on net sales of $15 million in 2007 compared to 2006.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Gross profit
|
|
$
|
1,440,910
|
|
|
$
|
1,442,707
|
|
|
$
|
(1,797
|
)
|
|
|
(0.1
|
)%
|
As a percent of net sales, our gross profit percentage was 32.2%
in 2007 compared to 32.8% in 2006. The lower gross profit
percentage was primarily due to higher cotton costs of
$21 million, higher excess and obsolete inventory costs of
$21 million, $16 million of higher accelerated
depreciation, $16 million of unfavorable product sales mix
and $13 million of higher
start-up and
shut down costs associated with the consolidation and
globalization of our supply chain. In addition, gross profit was
negatively impacted by higher incentives of $14 million of
which $16 million resulted from a change in the
classification of certain sales incentives in 2007 which were
previously classified as media, advertising and promotion
expenses in 2006. This change in classification was made in
accordance with
EITF 01-9,
Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products),
because the estimated fair value of the identifiable benefit was
no longer obtained beginning in 2007.
Cotton prices, which were approximately 50 cents per pound in
2006, returned to the ten year historical average of
approximately 56 cents per pound in 2007. The higher excess and
obsolete inventory costs in 2007 compared to 2006 are primarily
attributable to $9 million of costs associated with the
rationalization of our sock product category offerings and
$5 million related to exiting a licensing arrangement for a
kids underwear program. The remaining $7 million of
higher excess and obsolete costs aggregates all other product
categories as part of our continuous evaluation of both
inventory levels and simplification of our product category
offerings. The higher accelerated depreciation in 2007 was a
result of facilities closed or that will be closed in connection
with our consolidation and globalization strategy.
These higher costs were offset primarily by savings from our
cost reduction initiatives and prior restructuring actions of
$30 million, lower allocations of overhead costs of
$24 million, $19 million of improved plant
performance, $13 million of higher sales volume, lower duty
costs of $9 million, primarily due to the receipt of
$8 million in duty refunds relating to duties paid several
years ago, and $4 million of lower spending in numerous
other areas.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Selling, general and administrative expenses
|
|
$
|
1,040,754
|
|
|
$
|
1,093,436
|
|
|
$
|
(52,682
|
)
|
|
|
(4.8
|
)%
|
43
Selling, general and administrative expenses were
$53 million lower in 2007 compared to 2006. Our expenses
were lower primarily due to lower spin off and related charges
of $45 million, $12 million of savings from prior
restructuring actions, $10 million of lower distribution
expenses and $7 million in amortization of gain on
curtailment of postretirement benefits. Our media, advertising
and promotion (MAP) expenses were lower by
$41 million, primarily with respect to non-media related
MAP expenses. The lower non-media related MAP expenses are
primarily attributable to $25 million of cost reduction
initiatives and better deployment of these resources and
$16 million due to a change in the classification of
certain sales incentives in 2007 which were classified as MAP
expenses in 2006. MAP expenses may vary from period to period
during a fiscal year depending on the timing of our advertising
campaigns for retail selling seasons and product introductions.
In addition, pension expense was reduced by $3 million in
2007 as a result of the final separation of our pension assets
and liabilities from those of Sara Lee.
Our cost reduction efforts during the year have allowed us to
offset $7 million of higher stand alone expenses associated
with being an independent company and make investments in our
strategic initiatives resulting in $16 million of higher
media related MAP expenses and $13 million in higher
technology consulting expenses in 2007. In addition, our
allocations of overhead costs were $24 million lower during
2007 compared to 2006. Accelerated depreciation was
$3 million higher in 2007 as a result of facilities closed
or that will be closed in connection with our consolidation and
globalization strategy.
Gain
on Curtailment of Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Gain on curtailment of postretirement benefits
|
|
$
|
(32,144
|
)
|
|
$
|
(28,467
|
)
|
|
$
|
3,677
|
|
|
|
12.9
|
%
|
In December 2006, we notified retirees and employees of the
phase out of premium subsidies for early retiree medical
coverage and move to an access-only plan for early retirees by
the end of 2007. We also eliminated the medical plan for
retirees ages 65 and older as a result of coverage
available under the expansion of Medicare with Part D drug
coverage and eliminated future postretirement life benefits. The
gain on curtailment in 2006 represented the unrecognized amounts
associated with prior plan amendments that were being amortized
into income over the remaining service period of the
participants prior to the December 2006 amendments. In 2007, we
recognized $7 million in postretirement benefit income
which was recorded in Selling, general and administrative
expenses, primarily representing the amortization of
negative prior service costs, which was partially offset by
service costs, interest costs on the accumulated benefit
obligation and actuarial gains and losses accumulated in the
plan. In December 2007, we terminated the existing plan and
recognized a final gain on curtailment of plan benefits of
$32 million. Concurrently with the termination of the
existing plan, we established a new access only plan that is
fully paid by the participants.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Restructuring
|
|
$
|
43,731
|
|
|
$
|
11,516
|
|
|
$
|
32,215
|
|
|
|
279.7
|
%
|
During 2007, we approved actions to close 17 manufacturing
facilities and three distribution centers affecting
6,213 employees in the Dominican Republic, Mexico, the
United States, Brazil and Canada, while moving production to
lower-cost operations in Central America and Asia. In addition,
428 management and administrative positions were eliminated,
with the majority of these positions based in the United States.
These actions resulted in a charge of $32 million,
representing costs associated with the planned termination of
6,641 employees, primarily attributable to employee and
other termination benefits recognized in accordance with benefit
plans previously communicated to the affected employee group. In
addition, we recognized a
44
charge of $10 million for estimated lease termination costs
and $2 million primarily related to impairment charges
associated with facility closures approved in prior periods, for
facilities that were exited during 2007.
Of the seven manufacturing facilities and distribution centers
that were approved for closure in 2006, two were closed in 2006
and five were closed in 2007. Of the 20 manufacturing facilities
and distribution centers that were approved for closure in 2007,
10 were closed in 2007 and 10 are expected to close in 2008.
In connection with our consolidation and globalization strategy,
non-cash charges of $37 million and $3 million,
respectively, of accelerated depreciation of buildings and
equipment for facilities that have been closed or will be closed
is reflected in Cost of sales and Selling,
general and administrative expenses.
These actions, which are a continuation of our consolidation and
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and
consolidating production capacity.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Operating profit
|
|
$
|
388,569
|
|
|
$
|
366,222
|
|
|
$
|
22,347
|
|
|
|
6.1
|
%
|
Operating profit was higher in 2007 by $22 million compared
to 2006 primarily as a result of lower selling, general and
administrative expenses of $53 million and higher gain on
curtailment of postretirement benefits of $4 million
partially offset by higher restructuring charges of
$32 million and lower gross profit of $2 million. Our
ability to control costs and execute on our consolidation and
globalization strategy during 2007 has allowed us to offset
$29 million of higher investments in our strategic
initiatives and $7 million of higher standalone expenses
associated with being an independent company.
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Other expenses
|
|
$
|
5,235
|
|
|
$
|
7,401
|
|
|
$
|
(2,166
|
)
|
|
|
(29.3
|
)%
|
We recognized losses on early extinguishment of debt related to
unamortized debt issuance costs on the Senior Secured Credit
Facility for prepayments of $428 million of principal in
2007 including a prepayment of $250 million that was made
in connection with funding from the Receivables Facility we
entered into in November 2007.
Interest
Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Interest expense, net
|
|
$
|
199,208
|
|
|
$
|
79,621
|
|
|
$
|
119,587
|
|
|
|
150.2
|
%
|
Interest expense, net was higher in 2007 by $120 million
compared to 2006 primarily as a result of the indebtedness
incurred in connection with the spin off from Sara Lee on
September 5, 2006, consisting of $2.6 billion pursuant
to the Senior Secured Credit Facility, the Second Lien Credit
Facility and the Bridge Loan Facility. In December 2006, we
issued $500 million of Floating Fate Senior Notes and the
net proceeds were used to repay the Bridge Loan Facility.
In February 2007, we entered into a first amendment to the
Senior Secured Credit Facility with our lenders, which primarily
lowered the applicable borrowing margin with respect to the Term
B loan facility from 2.25% to 1.75% on LIBOR based loans and
from 1.25% to 0.75% on Base Rate loans. In November 2007, we
entered into the Receivables Facility with conduits that issue
commercial paper in the short-term
45
market and are not affiliated with us, which provides for up to
$250 million in funding accounted for as a secured
borrowing and is secured by certain domestic trade receivables.
The borrowing rate is generally the conduits cost to issue
commercial paper, plus certain dealer fees, which equated to
5.93% from November 27, 2007 through December 29,
2007. Our weighted average interest rate on our outstanding debt
in 2007 was 7.74%.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Income tax expense
|
|
$
|
57,999
|
|
|
$
|
71,184
|
|
|
$
|
(13,185
|
)
|
|
|
(18.5
|
)%
|
Our effective income tax rate was 31.5% in 2007 compared to
25.5% in 2006. The higher effective tax rate is attributable
primarily to our new independent structure and higher remitted
earnings from foreign subsidiaries in 2007.
Our effective tax rate is heavily influenced by the amount of
permanent capital investment we make offshore to fund our supply
chain consolidation and globalization strategy rather than
remitting those earnings back to the United States.
As we continue to fund our supply chain consolidation and
globalization strategy in future years, we may elect to
permanently invest earnings from foreign subsidiaries which
would result in a lower overall effective tax rate.
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net income
|
|
$
|
126,127
|
|
|
$
|
208,016
|
|
|
$
|
(81,889
|
)
|
|
|
(39.4
|
)%
|
Net income for 2007 was lower than 2006 primarily due to higher
interest expense and a higher effective income tax rate as a
result of our independent structure partially offset by higher
operating profit and lower other expenses.
46
Operating
Results by Business Segment Year Ended
December 29, 2007 Compared with Twelve Months Ended
December 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
2,556,906
|
|
|
$
|
2,574,967
|
|
|
$
|
(18,061
|
)
|
|
|
(0.7
|
)%
|
Outerwear
|
|
|
1,221,845
|
|
|
|
1,154,107
|
|
|
|
67,738
|
|
|
|
5.9
|
|
Hosiery
|
|
|
266,198
|
|
|
|
278,253
|
|
|
|
(12,055
|
)
|
|
|
(4.3
|
)
|
International
|
|
|
421,898
|
|
|
|
400,167
|
|
|
|
21,731
|
|
|
|
5.4
|
|
Other
|
|
|
56,920
|
|
|
|
44,670
|
|
|
|
12,250
|
|
|
|
27.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net segment sales
|
|
|
4,523,767
|
|
|
|
4,452,164
|
|
|
|
71,603
|
|
|
|
1.6
|
|
Intersegment
|
|
|
(49,230
|
)
|
|
|
(48,698
|
)
|
|
|
532
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
4,474,537
|
|
|
$
|
4,403,466
|
|
|
$
|
71,071
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
305,959
|
|
|
$
|
339,528
|
|
|
$
|
(33,569
|
)
|
|
|
(9.9
|
)%
|
Outerwear
|
|
|
71,364
|
|
|
|
57,310
|
|
|
|
14,054
|
|
|
|
24.5
|
|
Hosiery
|
|
|
76,917
|
|
|
|
49,281
|
|
|
|
27,636
|
|
|
|
56.1
|
|
International
|
|
|
53,147
|
|
|
|
37,799
|
|
|
|
15,348
|
|
|
|
40.6
|
|
Other
|
|
|
(1,361
|
)
|
|
|
(931
|
)
|
|
|
(430
|
)
|
|
|
(46.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
506,026
|
|
|
|
482,987
|
|
|
|
23,039
|
|
|
|
4.8
|
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(60,213
|
)
|
|
|
(104,065
|
)
|
|
|
(43,852
|
)
|
|
|
(42.1
|
)
|
Amortization of trademarks and other intangibles
|
|
|
(6,205
|
)
|
|
|
(8,452
|
)
|
|
|
(2,247
|
)
|
|
|
(26.6
|
)
|
Gain on curtailment of postretirement benefits
|
|
|
32,144
|
|
|
|
28,467
|
|
|
|
3,677
|
|
|
|
12.9
|
|
Restructuring
|
|
|
(43,731
|
)
|
|
|
(11,516
|
)
|
|
|
32,215
|
|
|
|
279.7
|
|
Accelerated depreciation included in cost of sales
|
|
|
(36,912
|
)
|
|
|
(21,199
|
)
|
|
|
15,713
|
|
|
|
74.1
|
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
(2,540
|
)
|
|
|
|
|
|
|
2,540
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
388,569
|
|
|
|
366,222
|
|
|
|
22,347
|
|
|
|
6.1
|
|
Other expenses
|
|
|
(5,235
|
)
|
|
|
(7,401
|
)
|
|
|
(2,166
|
)
|
|
|
(29.3
|
)
|
Interest expense, net
|
|
|
(199,208
|
)
|
|
|
(79,621
|
)
|
|
|
119,587
|
|
|
|
150.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
184,126
|
|
|
$
|
279,200
|
|
|
$
|
(95,074
|
)
|
|
|
(34.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
2,556,906
|
|
|
$
|
2,574,967
|
|
|
$
|
(18,061
|
)
|
|
|
(0.7
|
)%
|
Segment operating profit
|
|
|
305,959
|
|
|
|
339,528
|
|
|
|
(33,569
|
)
|
|
|
(9.9
|
)
|
Overall net sales in the Innerwear segment were slightly lower
by $18 million or 0.7% in 2007 compared to 2006. We
experienced lower sales volume of Playtex brand intimate
apparel sales of $23 million, lower Hanes brand
kids underwear sales of $21 million, lower licensed
mens underwear sales in the department store channel of
$10 million and $3 million lower Just My Size
brand sales. The lower net sales were partially offset by
higher Hanes brand socks, sleepwear, intimate apparel
sales and mens underwear of $11 million,
$8 million, $5 million and $4 million,
respectively, and higher Bali brand sales of
$12 million.
47
Net sales for the Hanes brand were higher in most key
categories, except for kids underwear. Hanes
mens underwear benefited from an increased focus on
core products and better overall performance at retail during
the year-end holiday season. Total sock sales, which now exceed
$340 million annually, were higher by 4%, primarily due to
new programs at our top two customers. Our Bali brand
sales were higher primarily as a result of our Passion for
Comfort media campaign launched in 2007. Playtex
brand sales were lower in 2007 due to soft department store
retail sales and a reduction in retail inventory primarily in
the first three quarters of 2007.
As a percent of segment net sales, gross profit percentage in
the Innerwear segment was 36.8% in 2007 compared to 37.4% in
2006. The gross profit percentage was lower due to unfavorable
product sales mix of $19 million, higher excess and
obsolete inventory costs of $13 million, unfavorable
product sales pricing of $12 million, $9 million in
higher cotton costs and unfavorable plant performance of
$4 million. The higher excess and obsolete inventory costs
in 2007 compared to 2006 are primarily attributable to
$9 million of costs associated with the rationalization of
our sock product category offerings and $5 million related
to exiting a licensing arrangement for a kids underwear
program. In addition, gross profit was negatively impacted by
higher incentives of $15 million primarily due to a change
in the classification of certain sales incentives in 2007 which
were classified as media, advertising and promotion expenses in
2006. These higher expenses were partially offset by lower
allocations of overhead costs of $15 million, lower duty
costs of $14 million primarily due to the receipt of
$7 million in duty refunds relating to duties paid several
years ago, $10 million of higher sales volume and
$10 million in savings from our cost reduction initiatives
and prior restructuring actions.
The lower Innerwear segment operating profit in 2007 compared to
2006 is primarily attributable to lower gross profit and a
higher allocation of selling, general and administrative
expenses of $22 million. These higher expenses were
partially offset by lower MAP expenses of $11 million,
primarily due to a change in the classification of certain sales
incentives in 2007 which were classified as MAP expenses in
2006. Our consolidated selling, general and administrative
expenses before segment allocations were lower in 2007 compared
to 2006 primarily due to lower spin off and related charges,
savings from prior restructuring actions, lower distribution
expenses, amortization of gain on curtailment of postretirement
benefits, lower MAP expenses and lower pension expense offset by
higher stand alone expenses, lower allocations of overhead
costs, higher accelerated depreciation and higher technology
consulting expenses.
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,221,845
|
|
|
$
|
1,154,107
|
|
|
$
|
67,738
|
|
|
|
5.9
|
%
|
Segment operating profit
|
|
|
71,364
|
|
|
|
57,310
|
|
|
|
14,054
|
|
|
|
24.5
|
|
Net sales in the Outerwear segment were higher by
$68 million in 2007 compared to 2006 primarily as a result
of higher Champion brand activewear and Hanes
brand retail casualwear net sales. Overall activewear and
retail casualwear net sales were higher by $60 million and
$50 million, respectively, in 2007 compared to 2006. The
higher net sales were partially offset by lower net sales in our
casualwear business as a result of lower sales of promotional
t-shirts sold primarily through our embellishment channel of
$42 million, most of which occurred in the first half of
2007. Champion, our second largest brand, benefited from
higher penetration in the sporting goods channel, and, together
with C9 by Champion, in the mid-tier department store
channel. In 2007, we expanded the depth and breadth of
distribution in sporting goods with our Champion Double Dry
performance products. Champion sales have increased
by double-digits in each of the past three years.
As a percent of segment net sales, gross profit percentage in
the Outerwear segment was 21.6% in 2007 compared to 19.4% in
2006. The improvement in gross profit is primarily attributable
to improved plant performance of $18 million, savings from
our cost reduction initiatives and prior restructuring actions
of $16 million, higher sales volume of $13 million,
lower allocations of overhead costs of $9 million and
48
favorable product sales pricing of $8 million offset
primarily by higher cotton costs of $11 million, higher
excess and obsolete inventory costs of $8 million, higher
duty costs of $4 million and higher sales incentives of
$4 million.
The higher Outerwear segment operating profit in 2007 compared
to 2006 is primarily attributable to a higher gross profit and
lower MAP expenses of $3 million which was offset by a
higher allocation of selling, general and administrative
expenses of $28 million. Our consolidated selling, general
and administrative expenses before segment allocations were
lower in 2007 compared to 2006 primarily due to lower spin off
and related charges, savings from prior restructuring actions,
lower distribution expenses, amortization of gain on curtailment
of postretirement benefits, lower MAP expenses and lower pension
expense offset by higher stand alone expenses, lower allocations
of overhead costs, higher accelerated depreciation and higher
technology consulting expenses.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
266,198
|
|
|
$
|
278,253
|
|
|
$
|
(12,055
|
)
|
|
|
(4.3
|
)%
|
Segment operating profit
|
|
|
76,917
|
|
|
|
49,281
|
|
|
|
27,636
|
|
|
|
56.1
|
|
Net sales in the Hosiery segment were lower by $12 million
in 2007 compared to 2006 primarily due to lower sales of the
Leggs brand to mass retailers and food and drug
stores. We expect the trend of declining hosiery sales to
continue consistent with the overall decline in the industry
(although the decline has slowed in recent years) and with
shifts in consumer preferences.
As a percent of segment net sales, gross profit percentage was
47.2% in 2007 compared to 41.3% in 2006 primarily due to
improved plant performance of $10 million, lower sales
incentives of $3 million and $5 million in savings
from our cost reduction initiatives and prior restructuring
actions which was partially offset by $10 million of lower
sales volume.
Hosiery segment operating profit was higher in 2007 compared to
2006 primarily due to a higher gross profit, $6 million in
lower MAP expenses and $12 million in lower allocated
selling, general and administrative expenses.
Our consolidated selling, general and administrative expenses
before segment allocations were lower in 2007 compared to 2006
primarily due to lower spin off and related charges, savings
from prior restructuring actions, lower distribution expenses,
amortization of gain on curtailment of postretirement benefits,
lower MAP expenses and lower pension expense offset by higher
stand alone expenses, lower allocations of overhead costs,
higher accelerated depreciation and higher technology consulting
expenses.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
421,898
|
|
|
$
|
400,167
|
|
|
$
|
21,731
|
|
|
|
5.4
|
%
|
Segment operating profit
|
|
|
53,147
|
|
|
|
37,799
|
|
|
|
15,348
|
|
|
|
40.6
|
|
Overall net sales in the International segment were higher by
$22 million in 2007 compared to 2006. During 2007 we
experienced higher net sales, in each case including the impact
of foreign currency, in Europe of $17 million, higher net
sales of $6 million in our emerging markets in Asia and
$3 million of higher sales in Latin America, which were
partially offset by lower sales in Canada of $5 million.
The growth in our European casualwear business was primarily
driven by the strength of the Stedman and Hanes
brands that are sold in the embellishment channel. The
higher sales in Asia were the result of significant retail
distribution gains in China and India. Changes in foreign
currency exchange rates had a favorable impact on net sales of
49
$15 million in 2007 compared to 2006 primarily due to the
strengthening of the Canadian dollar, Brazilian real and the
Euro.
As a percent of segment net sales, gross profit percentage was
41.3% in 2007 compared to 40.7% in 2006 primarily due to
$4 million of lower sales incentives, $2 million of
favorable product sales mix and $2 million of favorable
product sales pricing.
The higher International segment operating profit in 2007
compared to 2006 is primarily attributable to the higher gross
profit from higher sales volume, $3 million in lower MAP
expenses and $1 million in lower distribution expenses.
Changes in foreign currency exchange rates had a favorable
impact on segment operating profit of $3 million in 2007
compared to 2006 primarily due to the strengthening of the
Canadian dollar, Brazilian real and the Euro.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
56,920
|
|
|
$
|
44,670
|
|
|
$
|
12,250
|
|
|
|
27.4
|
%
|
Segment operating profit
|
|
|
(1,361
|
)
|
|
|
(931
|
)
|
|
|
(430
|
)
|
|
|
(46.2
|
)
|
The higher net sales from our Other segment primarily resulted
from an immaterial change in the way we recognized sales to
third party suppliers in 2006. The full year change was
reflected in 2006 with a $5 million impact on net sales and
minimal impact on segment operating profit. Net sales in this
segment are generated for the purpose of maintaining asset
utilization at certain manufacturing facilities.
General
Corporate Expenses
General corporate expenses were lower in 2007 compared to 2006
primarily due to lower spin off and related charges of
$45 million, amortization of gain on postretirement
benefits of $7 million and a $3 million reduction in
pension expense related to the final separation of our pension
plan assets and liabilities from those of Sara Lee. These lower
expenses were partially offset by higher stand alone expenses
associated with being an independent company of $7 million
and $4 million of higher expenses in numerous other areas.
50
Consolidated
Results of Operations Six Months Ended
December 30, 2006 Compared with Six Months Ended
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(unaudited)
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
2,250,473
|
|
|
$
|
2,319,839
|
|
|
$
|
(69,366
|
)
|
|
|
(3.0
|
)%
|
Cost of sales
|
|
|
1,530,119
|
|
|
|
1,556,860
|
|
|
|
(26,741
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
720,354
|
|
|
|
762,979
|
|
|
|
(42,625
|
)
|
|
|
(5.6
|
)
|
Selling, general and administrative expenses
|
|
|
547,469
|
|
|
|
505,866
|
|
|
|
41,603
|
|
|
|
8.2
|
|
Gain on curtailment of postretirement benefits
|
|
|
(28,467
|
)
|
|
|
|
|
|
|
28,467
|
|
|
|
NM
|
|
Restructuring
|
|
|
11,278
|
|
|
|
(339
|
)
|
|
|
11,617
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
190,074
|
|
|
|
257,452
|
|
|
|
(67,378
|
)
|
|
|
(26.2
|
)
|
Other expenses
|
|
|
7,401
|
|
|
|
|
|
|
|
7,401
|
|
|
|
NM
|
|
Interest expense, net
|
|
|
70,753
|
|
|
|
8,412
|
|
|
|
62,341
|
|
|
|
741.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
111,920
|
|
|
|
249,040
|
|
|
|
(137,120
|
)
|
|
|
(55.1
|
)
|
Income tax expense
|
|
|
37,781
|
|
|
|
60,424
|
|
|
|
(22,643
|
)
|
|
|
(37.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
74,139
|
|
|
$
|
188,616
|
|
|
$
|
(114,477
|
)
|
|
|
(60.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
2,250,473
|
|
|
$
|
2,319,839
|
|
|
$
|
(69,366
|
)
|
|
|
(3.0
|
)%
|
Net sales decreased $52 million, $12 million and
$17 million in our Innerwear, Hosiery and Other segments,
respectively. These declines were offset by increases in net
sales of $13 million and $2 million in our Outerwear
and International segments, respectively. Overall net sales
decreased due to a $28 million impact from our intentional
discontinuation of low-margin product lines in the Outerwear
segment and a $12 million decrease in sheer hosiery sales.
Additionally, the acquisition of National Textiles, L.L.C. in
September 2005 caused a $16 million decrease in our Other
segment as sales to this business were included in net sales in
periods prior to the acquisition. Finally, we experienced slower
sell-through of innerwear products in the mass merchandise and
department store retail channels during the latter half of the
six months ended December 30, 2006.
Cost
of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Cost of sales
|
|
$
|
1,530,119
|
|
|
$
|
1,556,860
|
|
|
$
|
(26,741
|
)
|
|
|
(1.7
|
)%
|
Cost of sales were lower year over year as a result of a
decrease in net sales, favorable spending from the benefits of
manufacturing cost savings initiatives and a favorable impact
from shifting certain production to lower cost locations. These
savings were offset partially by higher cotton costs, unusual
charges primarily to exit certain contracts and low margin
product lines, and accelerated depreciation as a result of our
announced plans to close four textile and sewing plants in the
United States, Puerto Rico and Mexico.
51
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Gross profit
|
|
$
|
720,354
|
|
|
$
|
762,979
|
|
|
$
|
(42,625
|
)
|
|
|
(5.6
|
)%
|
As a percent of net sales, gross profit percentage decreased to
32.0% for the six months ended December 30, 2006 from 32.9%
for the six months ended December 31, 2005. The decrease in
gross profit percentage was due to $21 million in
accelerated depreciation as a result of our announced plans to
close four textile and sewing plants, higher cotton costs of
$18 million, $15 million of unusual charges primarily
to exit certain contracts and low margin product lines and an
$11 million impact from lower manufacturing volume. The
higher costs were partially offset by $38 million of net
favorable spending from our prior year restructuring actions,
manufacturing cost savings initiatives and a favorable impact of
shifting certain production to lower cost locations. In
addition, the impact on gross profit from lower net sales was
$16 million.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Selling, general and administrative expenses
|
|
$
|
547,469
|
|
|
$
|
505,866
|
|
|
$
|
41,603
|
|
|
|
8.2
|
%
|
Selling, general and administrative expenses increased partially
due to higher non-recurring spin off and related costs of
$17 million and incremental costs associated with being an
independent company of $10 million, excluding the corporate
allocations associated with Sara Lee ownership in the prior year
of $21 million. Media, advertising and promotion costs
increased $12 million primarily due to unusual charges to
exit certain license agreements and additional investments in
our brands. Other unusual charges increasing selling, general
and administrative expenses by $12 million primarily
included certain freight revenue being moved to net sales during
the six months ended December 30, 2006 and a reduction of
estimated allocations to inventory costs. In addition, we
experienced slightly higher spending of approximately
$10 million in numerous areas such as technology
consulting, distribution, severance and market research, which
were partially offset by headcount savings from prior year
restructuring actions and a reduction in pension and
postretirement expenses.
Gain
on Curtailment of Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Gain on curtailment of postretirement benefits
|
|
$
|
(28,467
|
)
|
|
$
|
|
|
|
$
|
28,467
|
|
|
|
NM
|
|
In December 2006, we notified retirees and employees that we
would phase out premium subsidies for early retiree medical
coverage and move to an access-only plan for early retirees by
the end of 2007. We also decided to eliminate the medical plan
for retirees ages 65 and older as a result of coverage
available under the expansion of Medicare with Part D drug
coverage and eliminate future postretirement life benefits. The
gain on curtailment represents the unrecognized amounts
associated with prior plan amendments that were being amortized
into income over the remaining service period of the
participants prior to the December 2006 amendments. We recorded
postretirement benefit income related to this plan in 2007,
primarily representing the amortization of negative prior
service costs, which was partially offset by service costs,
interest costs on the accumulated benefit obligation and
actuarial gains and losses accumulated in the plan. We recorded
a final gain on curtailment of plan benefits in December 2007.
52
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Restructuring
|
|
$
|
11,278
|
|
|
$
|
(339
|
)
|
|
$
|
11,617
|
|
|
|
NM
|
|
During the six months ended December 30, 2006, we approved
actions to close four textile and sewing plants in the United
States, Puerto Rico and Mexico and consolidate three
distribution centers in the United States. These actions
resulted in a charge of $11 million, representing costs
associated with the planned termination of 2,989 employees
for employee termination and other benefits in accordance with
benefit plans previously communicated to the affected employee
group. In connection with these restructuring actions, a charge
of $21 million for accelerated depreciation of buildings
and equipment is reflected in the Cost of sales line
of the Consolidated Statement of Income. These actions were
expected to be completed in early 2007. These actions, which are
a continuation of our long-term global supply chain
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
improved alignment of sewing operations with the flow of
textiles, leveraging our large scale in high-volume products and
consolidating production capacity.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Operating profit
|
|
$
|
190,074
|
|
|
$
|
257,452
|
|
|
$
|
(67,378
|
)
|
|
|
(26.2
|
)%
|
Operating profit for the six months ended December 30, 2006
decreased as compared to the six months ended December 31,
2005 primarily as a result of facility closures announced in the
six months ended December 30, 2006 and restructuring
related costs of $32 million, higher non-recurring spin off
and related charges of $17 million, higher costs associated
with being an independent company of $10 million, unusual
charges of $35 million primarily to exit certain contracts
and low margin product lines, charges to exit certain license
agreements and additional investments in our brands. In
addition, we experienced higher cotton and production related
costs of $29 million, lower gross margin from lower net
sales of $16 million and slightly higher selling, general
and administrative spending of approximately $10 million in
numerous areas such as technology consulting, distribution,
severance and market research. These higher costs were offset
partially by favorable spending from our prior year
restructuring actions, manufacturing cost savings initiatives, a
favorable impact of shifting certain production to lower cost
locations and lower corporate allocations from Sara Lee totaling
$59 million and the gain on curtailment of postretirement
benefits of $28 million.
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Other expenses
|
|
$
|
7,401
|
|
|
$
|
|
|
|
$
|
7,401
|
|
|
|
NM
|
|
In connection with the offering of the Floating Rate Senior
Notes we recognized a $6 million loss on early
extinguishment of debt for unamortized debt issuance costs on
the Bridge Loan Facility entered into in connection with the
spin off from Sara Lee. We recognized approximately
$1 million loss on early extinguishment of debt related to
unamortized debt issuance costs on the Senior Secured Credit
Facility for the prepayment of $100 million of principal in
December 2006.
53
Interest
Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Interest expense, net
|
|
$
|
70,753
|
|
|
$
|
8,412
|
|
|
$
|
62,341
|
|
|
|
741.1
|
%
|
In connection with the spin off, we incurred $2.6 billion
of debt pursuant to the Senior Secured Credit Facility, the
Second Lien Credit Facility and the Bridge Loan Facility,
$2.4 billion of the proceeds of which was paid to Sara Lee.
As a result, our net interest expense in the six months ended
December 30, 2006 was substantially higher than in the
comparable period.
Under the Credit Facilities, we are required to hedge a portion
of our floating rate debt to reduce interest rate risk caused by
floating rate debt issuance. During the six months ended
December 30, 2006, we entered into various hedging
arrangements whereby we capped the interest rate on
$1 billion of our floating rate debt at 5.75%. We also
entered into interest rate swaps tied to the
3-month
London Interbank Offered Rate, or LIBOR, whereby we
fixed the interest rate on an aggregate of $500 million of
our floating rate debt at a blended rate of approximately 5.16%.
Approximately 60% of our total debt outstanding at
December 30, 2006 was at a fixed or capped rate. There was
no hedge ineffectiveness during the six months ended
December 30, 2006 period related to these instruments.
In December 2006, we completed the offering of $500 million
aggregate principal amount of the Floating Rate Senior Notes.
The Floating Rate Senior Notes bear interest at a per annum
rate, reset semiannually, equal to the six month LIBOR plus a
margin of 3.375 percent. The proceeds from the offering
were used to repay all outstanding borrowings under the Bridge
Loan Facility.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Income tax expense
|
|
$
|
37,781
|
|
|
$
|
60,424
|
|
|
$
|
(22,643
|
)
|
|
|
(37.5
|
)%
|
Our effective income tax rate increased from 24.3% for the six
months ended December 31, 2005 to 33.8% for the six months
ended December 30, 2006. The increase in our effective tax
rate as an independent company is attributable primarily to the
expiration of tax incentives for manufacturing in Puerto Rico of
$9 million, which were repealed effective for the periods
after July 1, 2006, higher taxes on remittances of foreign
earnings for the period of $9 million and $5 million
tax effect of lower unremitted earnings from foreign
subsidiaries in the six months ended December 30, 2006
taxed at rates less than the U.S. statutory rate. The tax
expense for both periods was impacted by a number of significant
items that are set out in the reconciliation of our effective
tax rate to the U.S. statutory rate in Note 17 titled
Income Taxes to our Consolidated Financial
Statements.
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net income
|
|
$
|
74,139
|
|
|
$
|
188,616
|
|
|
$
|
(114,477
|
)
|
|
|
(60.7
|
)%
|
Net income for the six months ended December 30, 2006 was
lower than for the six months ended December 31, 2005
primarily as a result of reduced operating profit, increased
interest expense, higher incomes taxes as an independent company
and losses on early extinguishment of debt.
54
Operating
Results by Business Segment Six Months Ended
December 30, 2006 Compared with Six Months Ended
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
|
(unaudited)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,295,868
|
|
|
$
|
1,347,582
|
|
|
$
|
(51,714
|
)
|
|
|
(3.8
|
)%
|
Outerwear
|
|
|
616,298
|
|
|
|
603,585
|
|
|
|
12,713
|
|
|
|
2.1
|
|
Hosiery
|
|
|
144,066
|
|
|
|
155,897
|
|
|
|
(11,831
|
)
|
|
|
(7.6
|
)
|
International
|
|
|
197,729
|
|
|
|
195,980
|
|
|
|
1,749
|
|
|
|
0.9
|
|
Other
|
|
|
19,381
|
|
|
|
36,096
|
|
|
|
(16,715
|
)
|
|
|
(46.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net segment sales
|
|
|
2,273,342
|
|
|
|
2,339,140
|
|
|
|
(65,798
|
)
|
|
|
(2.8
|
)
|
Intersegment
|
|
|
(22,869
|
)
|
|
|
(19,301
|
)
|
|
|
3,568
|
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,250,473
|
|
|
$
|
2,319,839
|
|
|
$
|
(69,366
|
)
|
|
|
(3.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
172,008
|
|
|
$
|
192,449
|
|
|
$
|
(20,441
|
)
|
|
|
(10.6
|
)%
|
Outerwear
|
|
|
21,316
|
|
|
|
49,248
|
|
|
|
(27,932
|
)
|
|
|
(56.7
|
)
|
Hosiery
|
|
|
36,205
|
|
|
|
26,531
|
|
|
|
9,674
|
|
|
|
36.5
|
|
International
|
|
|
15,236
|
|
|
|
16,574
|
|
|
|
(1,338
|
)
|
|
|
(8.1
|
)
|
Other
|
|
|
(288
|
)
|
|
|
1,202
|
|
|
|
(1,490
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
244,477
|
|
|
|
286,004
|
|
|
|
(41,527
|
)
|
|
|
(14.5
|
)
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(46,927
|
)
|
|
|
(24,846
|
)
|
|
|
22,081
|
|
|
|
88.9
|
|
Amortization of trademarks and other intangibles
|
|
|
(3,466
|
)
|
|
|
(4,045
|
)
|
|
|
(579
|
)
|
|
|
(14.3
|
)
|
Gain on curtailment of postretirement benefits
|
|
|
28,467
|
|
|
|
|
|
|
|
28,467
|
|
|
|
NM
|
|
Restructuring
|
|
|
(11,278
|
)
|
|
|
339
|
|
|
|
11,617
|
|
|
|
NM
|
|
Accelerated depreciation included in cost of sales
|
|
|
(21,199
|
)
|
|
|
|
|
|
|
21,199
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
190,074
|
|
|
|
257,452
|
|
|
|
(67,378
|
)
|
|
|
(26.2
|
)
|
Other expenses
|
|
|
(7,401
|
)
|
|
|
|
|
|
|
7,401
|
|
|
|
NM
|
|
Interest expense, net
|
|
|
(70,753
|
)
|
|
|
(8,412
|
)
|
|
|
62,341
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
111,920
|
|
|
$
|
249,040
|
|
|
$
|
(137,120
|
)
|
|
|
(55.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,295,868
|
|
|
$
|
1,347,582
|
|
|
$
|
(51,714
|
)
|
|
|
(3.8
|
)%
|
Segment operating profit
|
|
|
172,008
|
|
|
|
192,449
|
|
|
|
(20,441
|
)
|
|
|
(10.6
|
)
|
Net sales in our Innerwear segment decreased primarily due to
lower mens underwear and kids underwear sales of
$36 million and lower thermal sales of $14 million, as
well as additional investments in
55
our brands as compared to the six months ended December 31,
2005. We experienced lower sell-through of products in the mass
merchandise and department store retail channels primarily in
the latter half of the six months ended December 30, 2006.
As a percent of segment net sales, gross profit percentage in
the Innerwear segment increased from 36.5% for the six months
ended December 31, 2005 to 37.0% for the six months ended
December 30, 2006, reflecting a positive impact of
favorable spending of $21 million from our prior year
restructuring actions, cost savings initiatives and savings
associated with moving to lower cost locations. These changes
were partially offset by an unfavorable impact of lower volumes
of $18 million, higher cotton costs of $7 million and
unusual costs of $8 million primarily associated with
exiting certain low margin product lines.
The decrease in segment operating profit is primarily
attributable to the gross profit impact of the items noted above
and higher allocated selling, general and administrative
expenses of $8 million. Media, advertising and promotion
costs were slightly higher due to changes in license agreements,
net of lower media spend on innerwear categories. Our total
selling, general and administrative expenses before segment
allocations increased as a result of unusual charges, higher
stand alone costs as an independent company and higher spending
in numerous areas such as technology consulting, distribution,
severance and market research, which were partially offset by
headcount savings from prior year restructuring actions and a
reduction in pension and postretirement expenses.
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
616,298
|
|
|
$
|
603,585
|
|
|
|
12,713
|
|
|
|
2.1
|
%
|
Segment operating profit
|
|
|
21,316
|
|
|
|
49,248
|
|
|
|
(27,932
|
)
|
|
|
(56.7
|
)
|
Net sales in our Outerwear segment increased primarily due to
$33 million of increased sales of activewear and
$33 million of increased sales of boys fleece as
compared to the six months ended December 31, 2005. These
changes were partially offset by the $28 million impact of
our intentional exit of certain lower margin fleece product
lines, lower womens and girls fleece sales of
$16 million and $9 million of lower sportshirt, jersey
and other fleece sales.
As a percent of segment net sales, gross profit percentage
declined from 20.7% for the six months ended December 31,
2005 to 19.8% for the six months ended December 30, 2006
primarily as a result of higher cotton costs of
$11 million, $5 million associated with exiting
certain low margin product lines and higher duty, freight and
contractor costs of $6 million, partially offset by
$19 million in cost savings initiatives and a favorable
impact with shifting production to lower cost locations.
The decrease in segment operating profit is primarily
attributable to the gross profit impact of the items noted
above, higher media advertising and promotion expenses directly
attributable to our casualwear products of $15 million and
higher allocated selling, general and administrative expenses of
$10 million. Our total selling, general and administrative
expenses before segment allocations increased as a result of
unusual charges, higher stand-alone costs as an independent
company and higher spending in numerous areas such as technology
consulting, distribution, severance and market research, which
were partially offset by headcount savings from prior year
restructuring actions and a reduction in pension and
postretirement expenses.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
144,066
|
|
|
$
|
155,897
|
|
|
$
|
(11,831
|
)
|
|
|
(7.6
|
)%
|
Segment operating profit
|
|
|
36,205
|
|
|
|
26,531
|
|
|
|
9,674
|
|
|
|
36.5
|
|
56
Net sales in our Hosiery segment decreased primarily due to the
continued decline in U.S. sheer hosiery consumption. As
compared to the six months ended December 31 2005, overall sales
for the Hosiery segment declined 8% due to a continued reduction
in sales of Leggs to mass retailers and food and
drug stores and declining sales of Hanes to department
stores. Overall, the hosiery market declined 4.5% for the six
months ended December 30, 2006.
Gross profit declined slightly primarily due to the decline in
net sales offset by favorable spending of $3 million from
cost savings initiatives and a reduction in pension and
postretirement expenses.
Segment operating profit increased due primarily to
$10 million of lower allocated selling, general and
administrative expenses.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
197,729
|
|
|
$
|
195,980
|
|
|
$
|
1,749
|
|
|
|
0.9
|
%
|
Segment operating profit
|
|
|
15,236
|
|
|
|
16,574
|
|
|
|
(1,338
|
)
|
|
|
(8.1
|
)
|
Net sales in our International segment increased slightly due to
higher sales of t-shirts in Europe and higher sales in our
emerging markets in China, India and Brazil, partially offset by
softer sales in Mexico and lower sales in Japan due to a shift
in the launch of fall seasonal products. Changes in foreign
currency exchange rates increased net sales by $3 million.
As a percent of segment net sales, gross profit percentage
increased from 39.7% to 40.2% for the six months ended
December 30, 2006. The increase resulted primarily from a
$3 million decrease in overall spending and $1 million
from positive changes in foreign currency exchange rates. These
changes were offset by a $4 million impact from unfavorable
manufacturing efficiencies compared to the prior period.
The decrease in segment operating profit is attributable to the
gross profit impact of the items noted above offset by higher
allocated selling, general and administrative expenses of
$3 million.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
19,381
|
|
|
$
|
36,096
|
|
|
$
|
(16,715
|
)
|
|
|
(46.3
|
)%
|
Segment operating profit
|
|
|
(288
|
)
|
|
|
1,202
|
|
|
|
(1,490
|
)
|
|
|
NM
|
|
Net sales in the Other segment decreased primarily due to the
acquisition of National Textiles, L.L.C. in September 2005 which
caused a $16 million decline as sales to this business were
previously included in net sales prior to the acquisition.
As a percent of segment net sales, gross profit percentage
increased from 4.8% for the six months ended December 31,
2005 to 9.9% for the six months ended December 30, 2006
primarily as a result of favorable manufacturing variances.
The decrease in segment operating profit is primarily
attributable to higher allocated selling, general and
administrative expenses in the current period of $2 million
offset by the favorable manufacturing variances noted above. As
sales of this segment are generated for the purpose of
maintaining asset utilization at certain manufacturing
facilities, gross profit and operating profit are lower than
those of our other segments.
57
General
Corporate Expenses
General corporate expenses increased primarily due to higher
nonrecurring spin off and related costs of $17 million and
higher stand alone costs of $10 million of operating as an
independent company.
Consolidated
Results of Operations Year Ended July 1, 2006
Compared with Year Ended July 2, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
4,472,832
|
|
|
$
|
4,683,683
|
|
|
$
|
(210,851
|
)
|
|
|
(4.5
|
)%
|
Cost of sales
|
|
|
2,987,500
|
|
|
|
3,223,571
|
|
|
|
(236,071
|
)
|
|
|
(7.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,485,332
|
|
|
|
1,460,112
|
|
|
|
25,220
|
|
|
|
1.7
|
|
Selling, general and administrative expenses
|
|
|
1,051,833
|
|
|
|
1,053,654
|
|
|
|
(1,821
|
)
|
|
|
(0.2
|
)
|
Restructuring
|
|
|
(101
|
)
|
|
|
46,978
|
|
|
|
(47,079
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
433,600
|
|
|
|
359,480
|
|
|
|
74,120
|
|
|
|
20.6
|
|
Interest expense, net
|
|
|
17,280
|
|
|
|
13,964
|
|
|
|
3,316
|
|
|
|
23.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
416,320
|
|
|
|
345,516
|
|
|
|
70,804
|
|
|
|
20.5
|
|
Income tax expense
|
|
|
93,827
|
|
|
|
127,007
|
|
|
|
(33,180
|
)
|
|
|
(26.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
322,493
|
|
|
$
|
218,509
|
|
|
$
|
103,984
|
|
|
|
47.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
4,472,832
|
|
|
$
|
4,683,683
|
|
|
$
|
(210,851
|
)
|
|
|
(4.5
|
)%
|
Net sales declined primarily due to the $142 million impact
from the discontinuation of low-margin product lines in the
Innerwear, Outerwear and International segments and a
$48 million decline in sheer hosiery sales. Other factors
netting to $21 million of this decline include lower
selling prices and changes in product sales mix.
Cost
of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Cost of sales
|
|
$
|
2,987,500
|
|
|
$
|
3,223,571
|
|
|
($
|
236,071
|
)
|
|
|
(7.3
|
%)
|
Cost of sales declined year over year primarily as a result of
the decline in net sales. As a percent of net sales, gross
margin increased from 31.2% in 2005 to 33.2% in 2006. The
increase in gross margin percentage was primarily due to a
$140 million impact from lower cotton costs, and lower
charges for slow moving and obsolete inventories and a
$13 million impact from the benefits of prior year
restructuring actions partially offset by an $84 million
impact of lower selling prices and changes in product sales mix.
Although our 2006 results benefitted from lower cotton prices,
we anticipate cotton costs to increase in future periods.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Selling, general and administrative expenses
|
|
$
|
1,051,833
|
|
|
$
|
1,053,654
|
|
|
($
|
1,821
|
)
|
|
|
(0.2
|
%)
|
58
Selling, general and administrative expenses declined due to a
$31 million benefit from prior year restructuring actions,
an $11 million reduction in variable distribution costs and
a $7 million reduction in pension plan expense. These
decreases were partially offset by a $47 million decrease
in recovery of bad debts, higher share-based compensation
expense, increased advertising and promotion costs and higher
costs incurred related to the spin off. Measured as a percent of
net sales, selling, general and administrative expenses
increased from 22.5% in 2005 to 23.5% in 2006.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Restructuring
|
|
$
|
(101
|
)
|
|
$
|
46,978
|
|
|
$
|
(47,079
|
)
|
|
|
NM
|
|
The charge for restructuring in 2005 is primarily attributable
to costs for severance actions related to the decision to
terminate 1,126 employees, most of whom are located in the
United States. The income from restructuring in 2006 resulted
from the impact of certain restructuring actions that were
completed for amounts more favorable than originally expected
which is partially offset by $4 million of costs associated
with the decision to terminate 449 employees.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Operating profit
|
|
$
|
433,600
|
|
|
$
|
359,480
|
|
|
$
|
74,120
|
|
|
|
20.6
|
%
|
Operating profit in 2006 was higher than in 2005 as a result of
the items discussed above.
Interest
Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Interest expense, net
|
|
$
|
17,280
|
|
|
$
|
13,964
|
|
|
$
|
3,316
|
|
|
|
23.7
|
%
|
Interest expense decreased year over year as a result of lower
average balances on borrowings from Sara Lee. Interest income
decreased significantly as a result of lower average cash
balances.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Income tax expense
|
|
$
|
93,827
|
|
|
$
|
127,007
|
|
|
$
|
(33,180
|
)
|
|
|
(26.1
|
)%
|
Our effective income tax rate decreased from 36.8% in 2005 to
22.5% in 2006. The decrease in our effective tax rate is
attributable primarily to an $81.6 million charge in 2005
related to the repatriation of the earnings of foreign
subsidiaries to the United States. Of this total,
$50.0 million was recognized in connection with the
remittance of current year earnings to the United States, and
$31.6 million related to earnings repatriated under the
provisions of the American Jobs Creation Act of 2004. The tax
expense for both periods was impacted by a number of significant
items which are set out in the reconciliation of our effective
tax rate to the U.S. statutory rate in Note 17 titled
Income Taxes to our Consolidated Financial
Statements.
59
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net income
|
|
$
|
322,493
|
|
|
$
|
218,509
|
|
|
$
|
103,984
|
|
|
|
47.6
|
%
|
Net income in 2006 was higher than in 2005 as a result of the
items discussed above.
Operating
Results by Business Segment Year Ended July 1,
2006 Compared with Year Ended July 2, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
2,627,101
|
|
|
$
|
2,703,637
|
|
|
$
|
(76,536
|
)
|
|
|
(2.8
|
)%
|
Outerwear
|
|
|
1,140,703
|
|
|
|
1,198,286
|
|
|
|
(57,583
|
)
|
|
|
(4.8
|
)
|
Hosiery
|
|
|
290,125
|
|
|
|
338,468
|
|
|
|
(48,343
|
)
|
|
|
(14.3
|
)
|
International
|
|
|
398,157
|
|
|
|
399,989
|
|
|
|
(1,832
|
)
|
|
|
(0.5
|
)
|
Other
|
|
|
62,809
|
|
|
|
88,859
|
|
|
|
(26,050
|
)
|
|
|
(29.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net segment sales
|
|
|
4,518,895
|
|
|
|
4,729,239
|
|
|
|
(210,344
|
)
|
|
|
(4.4
|
)
|
Intersegment
|
|
|
(46,063
|
)
|
|
|
(45,556
|
)
|
|
|
507
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
4,472,832
|
|
|
$
|
4,683,683
|
|
|
$
|
(210,851
|
)
|
|
|
(4.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
344,643
|
|
|
$
|
300,796
|
|
|
$
|
43,847
|
|
|
|
14.6
|
%
|
Outerwear
|
|
|
74,170
|
|
|
|
68,301
|
|
|
|
5,869
|
|
|
|
8.6
|
|
Hosiery
|
|
|
39,069
|
|
|
|
40,776
|
|
|
|
(1,707
|
)
|
|
|
(4.2
|
)
|
International
|
|
|
37,003
|
|
|
|
32,231
|
|
|
|
4,772
|
|
|
|
14.8
|
|
Other
|
|
|
127
|
|
|
|
(174
|
)
|
|
|
301
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
495,012
|
|
|
|
441,930
|
|
|
|
53,082
|
|
|
|
12.0
|
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(52,482
|
)
|
|
|
(21,823
|
)
|
|
|
30,659
|
|
|
|
140.5
|
|
Amortization of trademarks and other identifiable intangibles
|
|
|
(9,031
|
)
|
|
|
(9,100
|
)
|
|
|
(69
|
)
|
|
|
(0.8
|
)
|
Restructuring
|
|
|
101
|
|
|
|
(46,978
|
)
|
|
|
(47,079
|
)
|
|
|
NM
|
|
Accelerated depreciation included in cost of sales
|
|
|
|
|
|
|
(4,549
|
)
|
|
|
(4,549
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
433,600
|
|
|
|
359,480
|
|
|
|
74,120
|
|
|
|
20.6
|
|
Interest expense, net
|
|
|
(17,280
|
)
|
|
|
(13,964
|
)
|
|
|
3,316
|
|
|
|
23.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
416,320
|
|
|
$
|
345,516
|
|
|
$
|
70,804
|
|
|
|
20.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
2,627,101
|
|
|
$
|
2,703,637
|
|
|
$
|
(76,536
|
)
|
|
|
(2.8
|
)%
|
Segment operating profit
|
|
|
344,643
|
|
|
|
300,796
|
|
|
|
43,847
|
|
|
|
14.6
|
|
Net sales in the Innerwear segment decreased primarily due to a
$65 million impact of our discontinuation of certain
sleepwear, thermal and private label product lines and the
closure of certain retail stores. Net sales were also negatively
impacted by $15 million of lower sock sales due to both
lower shipment volumes and lower pricing.
Gross profit percentage in the Innerwear segment increased from
35.1% in 2005 to 37.2% in 2006, reflecting a $78 million
impact of lower charges for slow moving and obsolete
inventories, lower cotton costs and benefits from prior
restructuring actions, partially offset by lower gross margins
for socks due to pricing pressure and mix.
The increase in Innerwear segment operating profit is primarily
attributable to the increase in gross margin and a
$37 million impact of lower allocated selling expenses and
other selling, general and administrative expenses due to
headcount reductions. This is partially offset by
$21 million related to higher allocated media advertising
and promotion costs.
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,140,703
|
|
|
$
|
1,198,286
|
|
|
$
|
(57,583
|
)
|
|
|
(4.8
|
)%
|
Segment operating profit
|
|
|
74,170
|
|
|
|
68,301
|
|
|
|
5,869
|
|
|
|
8.6
|
|
Net sales in the Outerwear segment decreased primarily due to
the $64 million impact of our exit of certain lower-margin
fleece product lines and a $33 million impact of lower
sales of casualwear products both in the retail channel and in
the embellishment channel, resulting from lower prices and an
unfavorable sales mix, partially offset by a $44 million
impact from higher sales of activewear products.
Gross profit percentage in the Outerwear segment increased from
18.9% in 2005 to 20.0% in 2006, reflecting a $72 million
impact of lower charges for slow moving and obsolete
inventories, lower cotton costs, benefits from prior
restructuring actions and the exit of certain lower-margin
fleece product lines, partially offset by pricing pressures and
an unfavorable sales mix of t-shirts sold in the embellishment
channel.
The increase in Outerwear segment operating profit is primarily
attributable to a higher gross profit percentage and a
$7 million impact of lower allocated selling, general and
administrative expenses due to the benefits of prior
restructuring actions.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
290,125
|
|
|
$
|
338,468
|
|
|
$
|
(48,343
|
)
|
|
|
(14.3
|
)%
|
Segment operating profit
|
|
|
39,069
|
|
|
|
40,776
|
|
|
|
(1,707
|
)
|
|
|
(4.2
|
)
|
Net sales in the Hosiery segment decreased primarily due to the
continued decline in sheer hosiery consumption in the United
States. Outside unit volumes in the Hosiery segment decreased by
13% in 2006, with an 11% decline in Leggs volume to
mass retailers and food and drug stores and a 22% decline in
Hanes volume to department stores. Overall the hosiery
market declined 11%.
61
Gross profit percentage in the Hosiery segment increased from
38.0% in 2005 to 40.2% in 2006. The increase resulted primarily
from improved product sales mix and pricing.
The decrease in Hosiery segment operating profit is primarily
attributable to lower sales volume.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
398,157
|
|
|
$
|
399,989
|
|
|
$
|
(1,832
|
)
|
|
|
(0.5
|
)%
|
Segment operating profit
|
|
|
37,003
|
|
|
|
32,231
|
|
|
|
4,772
|
|
|
|
14.8
|
|
Net sales in the International segment decreased primarily as a
result of $4 million in lower sales in Latin America which
were mainly the result of a $13 million impact from our
exit of certain low-margin product lines. Changes in foreign
currency exchange rates increased net sales by $10 million.
Gross profit percentage increased from 39.1% in 2005 to 40.6% in
2006. The increase is due to lower allocated selling, general
and administrative expenses and margin improvements in sales in
Canada resulting from greater purchasing power for contracted
goods.
The increase in International segment operating profit is
primarily attributable to a $7 million impact of
improvements in gross profit in Canada.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2006
|
|
|
2005
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
62,809
|
|
|
$
|
88,859
|
|
|
$
|
(26,050
|
)
|
|
|
(29.3
|
)%
|
Segment operating profit
|
|
|
127
|
|
|
|
(174
|
)
|
|
|
301
|
|
|
|
NM
|
|
Net sales decreased primarily due to the acquisition of National
Textiles, L.L.C. in September 2005 which caused a
$72 million decline as sales to this business were
previously included in net sales prior to the acquisition. Sales
to National Textiles, L.L.C. subsequent to the acquisition of
this business are eliminated for purposes of segment reporting.
This decrease was partially offset by $40 million in fabric
sales to third parties by National Textiles, L.L.C. subsequent
to the acquisition. An additional offset was related to
increased sales of $7 million due to the acquisition of a
Hong Kong based sourcing business at the end of 2005.
Gross profit and segment operating profit remained flat as
compared to 2005. As sales in this segment are generated for the
purpose of maintaining asset utilization at certain
manufacturing facilities, gross profit and operating profit are
lower than those of our other segments.
General
Corporate Expenses
General corporate expenses not allocated to the segments
increased in 2006 from 2005 as a result of higher incurred costs
related to the spin off.
Liquidity
and Capital Resources
Trends
and Uncertainties Affecting Liquidity
Our primary sources of liquidity are our cash flows from
operating activities and availability under our revolving loan
facility. We believe our ability to generate cash from operating
activities is one of our fundamental financial strengths. For
the year ended December 29, 2007, we generated
$359 million in cash from operating activities and have
$174 million in cash and cash equivalents at
December 29, 2007. Barring unforeseen events, we expect
cash flows from operating activities to be consistent in 2008
and in future years. In addition, at December 29, 2007, our
$500 million revolving loan facility remains undrawn and,
after taking into account outstanding letters of credit, has
62
$430 million available for borrowing. We believe that our
cash provided from operating activities, together with our
available credit capacity, will enable us to comply with the
terms of our indebtedness and meet presently foreseeable
financial requirements.
The following has or is expected to impact liquidity:
|
|
|
|
|
we have principal and interest obligations under our long-term
debt;
|
|
|
|
we expect to continue to invest in efforts to improve operating
efficiencies and lower costs;
|
|
|
|
we expect to continue to add new manufacturing capacity in
Central America, the Caribbean Basin and Asia;
|
|
|
|
we may need to decrease the portion of the income of our foreign
subsidiaries that is expected to be remitted to the United
States, which could significantly decrease our effective income
tax rate; and
|
|
|
|
we expect to repurchase up to 10 million shares of our
stock in the open market over the next few years,
1.6 million of which we have purchased as of
December 29, 2007.
|
We expect to continue the restructuring efforts that we have
undertaken since the spin off from Sara Lee. The implementation
of these efforts, which are designed to improve operating
efficiencies and lower costs, has resulted and is likely to
continue to result in significant costs and savings. As further
plans are developed and approved by management and in some cases
our board of directors, we expect to recognize additional
restructuring to eliminate duplicative functions within the
organization and transition a significant portion of our
manufacturing capacity to lower-cost locations. As part of our
efforts to consolidate our operations, we also expect to
continue to incur costs associated with the integration of our
information technology systems across our company over the next
several years. This process involves the replacement of eight
independent information technology platforms so that our
business functions are served by fewer platforms.
While capital spending could vary significantly from year to
year, we anticipate that our capital spending over the next
three years could be as high as $500 million as we execute
our supply chain consolidation and globalization strategy and
complete the integration and consolidation of our technology
systems. Capital spending in any given year over the next three
years could be as high as $100 million in excess of our
annual depreciation and amortization expense until the
completion of actions related to our globalization strategy at
which time we would expect our annual capital spending to be
relatively comparable to our annual depreciation and
amortization expense. The majority of our capital spending will
be focused on growing our supply chain operations in Central
America, the Caribbean Basin, and Asia. These locations will
enable us to expand and leverage our large production scale as
we balance our supply chain across hemispheres. In 2007, we
acquired our second offshore textile plant, the 1,300-employee
textile manufacturing operations of Industrias Duraflex, S.A. de
C.V., in San Juan Opico, El Salvador. This acquisition
provides a textile base in Central America from which to expand
and leverage our large scale as well as supply our sewing
network throughout Central America. Also, we announced plans in
2007 to build a textile production plant in Nanjing, China,
which will be our first company-owned textile production
facility in Asia. The Nanjing textile facility will enable us to
expand and leverage our production scale in Asia as we balance
our supply chain across hemispheres. In December 2007, we
acquired the 900-employee sheer hosiery facility in Las Lourdes,
El Salvador of Inversiones Bonaventure, S.A. de C.V. For the
past 12 years, these operations had been a primary contract
sewing operation for Hanes and Leggs hosiery
products. The acquisition streamlines a critical part of our
overall hosiery supply chain and is part of our strategy to
operate larger, company-owned production facilities.
As we continue to add new manufacturing capacity in Central
America, the Caribbean Basin and Asia, our exposure to events
that could disrupt our foreign supply chain, including political
instability, acts of war or terrorism or other international
events resulting in the disruption of trade, disruptions in
shipping and freight forwarding services, increases in oil
prices (which would increase the cost of shipping),
interruptions in the availability of basic services and
infrastructure and fluctuations in foreign currency exchange
rates, is increased. Disruptions in our foreign supply chain
could negatively impact our liquidity by interrupting production
in offshore facilities, increasing our cost of sales, disrupting
merchandise deliveries, delaying
63
receipt of the products into the United States or preventing us
from sourcing our products at all. Depending on timing, these
events could also result in lost sales, cancellation charges or
excessive markdowns.
As a result of provisions of the Pension Protection Act of 2006,
we are required by law, commencing with plan years beginning
after 2007, to make larger contributions to our pension plans
than Sara Lee made with respect to these plans in past years.
However, the final separation of our pension plan assets and
liabilities from those of Sara Lee in 2007 resulted in a higher
total amount of pension assets being transferred to us than was
originally estimated prior to the spin off which, together with
our voluntary contributions of $48 million in 2006 and
$48 million in 2007 to our pension plans, has resulted in
our U.S. qualified pension plans currently being
approximately 97% funded which should result in minimal pension
funding requirements in the future.
Consolidated
Cash Flows
The information presented below for the year ended
December 29, 2007 was derived from our consolidated
financial statements. The unaudited information presented for
the twelve months ended December 30, 2006 is presented due
to the change in our fiscal year end and was derived by
combining the six months ended July 1, 2006 and the six
months ended December 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(dollars in thousands)
|
|
|
Cash flows from operating activities
|
|
$
|
359,040
|
|
|
$
|
280,213
|
|
Cash flows from investing activities
|
|
|
(101,085
|
)
|
|
|
(81,102
|
)
|
Cash flows from financing activities
|
|
|
(243,379
|
)
|
|
|
(555,876
|
)
|
Effect of changes in foreign currency exchange rates on cash
|
|
|
3,687
|
|
|
|
2,106
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
18,263
|
|
|
$
|
(354,659
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
155,973
|
|
|
|
510,632
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
174,236
|
|
|
$
|
155,973
|
|
|
|
|
|
|
|
|
|
|
Net Cash
from Operating Activities
Net cash provided by operating activities was $359 million
in the year ended December 29, 2007 compared to
$280 million in the year ended December 30, 2006. The
higher cash provided from operating activities of
$79 million was primarily the result of better management
of working capital, partially offset by lower earnings in the
business primarily attributable to higher interest expense, a
higher effective income tax rate and higher restructuring and
related charges which was partially offset by lower selling,
general and administrative expenses. The net cash provided by
operating activities for year ended December 29, 2007 and
the year ended December 30, 2006 reflect $48 million
in pension contributions each year.
Net Cash
Used in Investing Activities
Net cash used in investing activities was $101 million in
the year ended December 29, 2007 compared to
$81 million in the year ended December 30, 2006. The
higher cash used in investing activities of $20 million was
primarily the result of acquiring of the textile manufacturing
operations of Industrias Duraflex, S.A. de C.V. in El Salvador
and a sheer hosiery sewing facility operation in El Salvador and
slightly higher purchases of property and equipment.
Net Cash
Used in Financing Activities
Net cash used in financing activities was $243 million in
the year ended December 29, 2007 compared to
$556 million in the year ended December 30, 2006. The
lower cash used in financing activities of $313 million was
primarily the result of the elimination of net transactions with
parent companies and related entities
64
subsequent to the spin off from Sara Lee on September 5,
2006, the incurrence of $2.6 billion of indebtedness offset
by payments of $2.4 billion to Sara Lee in connection with
the spin off and lower net borrowings and repayments on notes
payable in 2007, partially offset by an increase in repayments
of debt under credit facilities and share repurchases in 2007.
On November 27, 2007, we entered into the Receivables
Facility, which provides for borrowings up to $250 million.
We used all $250 million of the proceeds from the
Receivables Facility to make a prepayment of principal under the
Senior Secured Credit Facility.
In addition to the prepayment of principal in connection with
the Receivables Facility, we repaid $178 million of
long-term debt, of which $175 million was a prepayment
during the year ended December 29, 2007. We repurchased
$44 million of company stock pursuant to a program approved
by the Board of Directors in January 2007 which authorizes the
repurchase of up to 10 million shares of our common stock.
Cash
and Cash Equivalents
As of December 29, 2007 and December 30, 2006, cash
and cash equivalents were $174 million and
$156 million, respectively. The higher cash and cash
equivalents as of December 29, 2007 was primarily the
result of management of working capital, partially offset by
lower net income, the repayment of debt under credit facilities
and the purchase of 1.6 million shares of our common stock
in 2007.
Financing
Arrangements
We believe our financing structure provides a secure base to
support our ongoing operations and key business strategies.
In November 2007, Standard & Poors Ratings
Services raised its outlook to positive from
stable and affirmed its B+ corporate
credit rating for us. Standard & Poors stated
that the revision reflects the positive momentum since the spin
off from Sara Lee on September 5, 2006 and also stated that
our credit protection measures and operating results are in line
with Standard & Poors expectations.
In connection with the spin off, on September 5, 2006, we
entered into the $2.15 billion Senior Secured Credit
Facility which includes a $500 million revolving loan
facility, or the Revolving Loan Facility, that was
undrawn at the time of the spin off, the $450 million
Second Lien Credit Facility and the $500 million Bridge
Loan Facility. As a result of this debt incurrence, the amount
of interest expense increased significantly in periods after the
spin off. We paid $2.4 billion of the proceeds of these
borrowings to Sara Lee in connection with the consummation of
the spin off. As of December 29, 2007, we had
$430 million of borrowing availability under the Revolving
Loan Facilty after taking into account outstanding letters of
credit. The Bridge Loan Facility was paid off in full through
the issuance of the $500 million of Floating Rate Senior
Notes issued in December 2006. On November 27, 2007, we
entered into the Receivables Facility which provides for up to
$250 million in funding accounted for as a secured
borrowing, limited to the availability of eligible receivables,
and is secured by certain domestic trade receivables. The
proceeds from the Receivables Facility were used to pay off a
portion of the Senior Secured Credit Facility.
Senior
Secured Credit Facility
The Senior Secured Credit Facility initially provided for
aggregate borrowings of $2.15 billion, consisting of:
(i) a $250.0 million Term A loan facility (the
Term A Loan Facility); (ii) a $1.4 billion
Term B loan facility (the Term B Loan Facility); and
(iii) the $500.0 million Revolving Loan Facility that
was undrawn as of December 29, 2007. Any issuance of
letters of credit would reduce the amount available under the
Revolving Loan Facility. As of December 29, 2007,
$70 million of standby and trade letters of credit were
issued under this facility and $430 million was available
for borrowing. As of December 29, 2007, $139 million
and $976 million in principal was outstanding under the
Term A Loan Facility and Term B Loan Facility, respectively.
The Senior Secured Credit Facility is guaranteed by
substantially all of our existing and future direct and indirect
U.S. subsidiaries, with certain customary or
agreed-upon
exceptions for certain subsidiaries. We and
65
each of the guarantors under the Senior Secured Credit Facility
have granted the lenders under the Senior Secured Credit
Facility a valid and perfected first priority (subject to
certain customary exceptions) lien and security interest in the
following:
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the equity interests of substantially all of our direct and
indirect U.S. subsidiaries and 65% of the voting securities
of certain foreign subsidiaries; and
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substantially all present and future property and assets, real
and personal, tangible and intangible, of Hanesbrands and each
guarantor, except for certain enumerated interests, and all
proceeds and products of such property and assets.
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The Term A Loan Facility matures on September 5, 2012. The
Term A Loan Facility will amortize in an amount per annum equal
to the following: year 1 5.00%; year 2
10.00%; year 3 15.00%; year 4 20.00%;
year 5 25.00%; year 6 25.00%. The Term B
Loan Facility matures on September 5, 2013. The Term B Loan
Facility will be repaid in equal quarterly installments in an
amount equal to 1% per annum, with the balance due on the
maturity date. The Revolving Loan Facility matures on
September 5, 2011. All borrowings under the Revolving Loan
Facility must be repaid in full upon maturity. Outstanding
borrowings under the Senior Secured Credit Facility are
prepayable without penalty. As a result of the prepayments of
principal we have made, we do not have any mandatory payments of
principal in 2008.
At our option, borrowings under the Senior Secured Credit
Facility may be maintained from time to time as (a) Base
Rate loans, which shall bear interest at the higher of
(i) 1/2 of 1% in excess of the federal funds rate and
(ii) the rate published in the Wall Street Journal as the
prime rate (or equivalent), in each case in effect
from time to time, plus the applicable margin in effect from
time to time (which is currently 0.50% for the Term A Loan
Facility and the Revolving Loan Facility and 0.75% for the Term
B Loan Facility), or (b) LIBOR-based loans, which shall
bear interest at the LIBO Rate (as defined in the Senior Secured
Credit Facility and adjusted for maximum reserves), as
determined by the administrative agent for the respective
interest period plus the applicable margin in effect from time
to time (which is currently 150% for the Term A Loan Facility
and the Revolving Loan Facility and 1.75% for the Term B Loan
Facility).
In February 2007, we entered into an amendment to the Senior
Secured Credit Facility, pursuant to which the applicable margin
with respect to Term B Loan Facility was reduced from 2.25% to
1.75% with respect to LIBOR-based loans and from 1.25% to 0.75%
with respect to loans maintained as Base Rate loans. The
amendment also provides that in the event that, prior to
February 22, 2008, we: (i) incur a new tranche of
replacement loans constituting obligations under the Senior
Secured Credit Facility having an effective interest rate margin
less than the applicable margin for loans pursuant to the Term B
Loan Facility (Term B Loans), the proceeds of which
are used to repay or return, in whole or in part, principal of
the outstanding Term B Loans, (ii) consummate any other
amendment to the Senior Secured Credit Facility that reduces the
applicable margin for the Term B Loans, or (iii) incur
additional Term B loans having an effective interest rate margin
less than the applicable margin for Term B Loans, the proceeds
of which are used in whole or in part to prepay or repay
outstanding Term B Loans, then in any such case, we will pay to
the Administrative Agent, for the ratable account of each Lender
with outstanding Term B Loans, a fee in an amount equal to 1.0%
of the aggregate principal amount of all Term B Loans being
replaced on such date immediately prior to the effectiveness of
such transaction.
The Senior Secured Credit Facility requires us to comply with
customary affirmative, negative and financial covenants. The
Senior Secured Credit Facility requires that we maintain a
minimum interest coverage ratio and a maximum total debt to
earnings before income taxes, depreciation expense and
amortization, or EBITDA ratio. The interest coverage
covenant requires that the ratio of our EBITDA for the preceding
four fiscal quarters to our consolidated total interest expense
for such period shall not be less than a specified ratio for
each fiscal quarter ending after December 15, 2006. This
ratio was 2:25 to 1 for the quarter ended December 29, 2007
and will increase over time until it reaches 3.25 to 1 for
fiscal quarters ending after October 15, 2009. The total
debt to EBITDA covenant requires that the ratio of our total
debt to our EBITDA for the preceding four fiscal quarters will
not be more than a specified ratio for each fiscal quarter
ending after December 15, 2006. This ratio was 4.50 to 1
for the quarter ended December 29, 2007 will decline over
time until it reaches 3 to 1 for fiscal quarters ending after
October 15, 2009. The method of calculating all of the
66
components used in the covenants is included in the Senior
Secured Credit Facility. As of December 29, 2007, we were
in compliance with all covenants.
The Senior Secured Credit Facility contains customary events of
default, including nonpayment of principal when due; nonpayment
of interest, fees or other amounts after stated grace period;
inaccuracy of representations and warranties; violations of
covenants; certain bankruptcies and liquidations; any
cross-default of more than $50 million; certain judgments
of more than $50 million; certain events related to the
Employee Retirement Income Security Act of 1974, as amended, or
ERISA, and a change in control (as defined in the
Senior Secured Credit Facility).
Second
Lien Credit Facility
The Second Lien Credit Facility provides for aggregate
borrowings of $450 million by Hanesbrands
wholly-owned subsidiary, HBI Branded Apparel Limited, Inc. The
Second Lien Credit Facility is unconditionally guaranteed by
Hanesbrands and each entity guaranteeing the Senior Secured
Credit Facility, subject to the same exceptions and exclusions
provided in the Senior Secured Credit Facility. The Second Lien
Credit Facility and the guarantees in respect thereof are
secured on a second-priority basis (subordinate only to the
Senior Secured Credit Facility and any permitted additions
thereto or refinancings thereof) by substantially all of the
assets that secure the Senior Secured Credit Facility (subject
to the same exceptions).
Loans under the Second Lien Credit Facility will bear interest
in the same manner as those under the Senior Secured Credit
Facility, subject to a margin of 2.75% for Base Rate loans and
3.75% for LIBOR based loans.
The Second Lien Credit Facility requires us to comply with
customary affirmative, negative and financial covenants. The
Second Lien Credit Facility requires that we maintain a minimum
interest coverage ratio and a maximum total debt to earnings
before income taxes, depreciation expense and amortization, or
EBITDA ratio. The interest coverage covenant
requires that the ratio of our EBITDA for the preceding four
fiscal quarters to our consolidated total interest expense for
such period shall not be less than a specified ratio for each
fiscal quarter ending after December 15, 2006. This ratio
was 1:75 to 1 for the quarter ended December 29, 2007 and
will increase over time until it reaches 2.5 to 1 for fiscal
quarters ending after April 15, 2009. The total debt to
EBITDA covenant requires that the ratio of our total debt to our
EBITDA for the preceding four fiscal quarters will not be more
than a specified ratio for each fiscal quarter ending after
December 15, 2006. This ratio was 5 to 1 for the quarter
ended December 29, 2007 will decline over time until it
reaches 3.75 to 1 for fiscal quarters ending after
October 15, 2009. The method of calculating all of the
components used in the covenants is included in the Second Lien
Credit Facility. As of December 29, 2007, we were in
compliance with all covenants.
The Second Lien Credit Facility contains customary events of
default, including nonpayment of principal when due; nonpayment
of interest, fees or other amounts after stated grace period;
inaccuracy of representations and warranties; violations of
covenants; certain bankruptcies and liquidations; any
cross-default of more than $60 million; certain judgments of
more than $60 million; certain ERISA-related events; and a
change in control (as defined in the Second Lien Credit
Facility).
The Second Lien Credit Facility matures on March 5, 2014,
and includes premiums for prepayment of the loan prior to
September 5, 2009 based on the timing of the prepayment.
The Second Lien Credit Facility will not amortize and will be
repaid in full on its maturity date.
Floating
Rate Senior Notes
On December 14, 2006, we issued $500.0 million
aggregate principal amount of the Floating Rate Senior Notes.
The Floating Rate Senior Notes are senior unsecured obligations
that rank equal in right of payment with all of our existing and
future unsubordinated indebtedness. The Floating Rate Senior
Notes bear interest at an annual rate, reset semi-annually,
equal to LIBOR plus 3.375%. Interest is payable on the Floating
Rate Senior Notes on June 15 and December 15 of each year. The
Floating Rate Senior Notes will mature on December 15,
2014. The net proceeds from the sale of the Floating Rate Senior
Notes were approximately
67
$492.0 million. As noted above, these proceeds, together
with our working capital, were used to repay in full the
$500 million outstanding under the Bridge Loan Facility.
The Floating Rate Senior Notes are guaranteed by substantially
all of our domestic subsidiaries.
We may redeem some or all of the Floating Rate Senior Notes at
any time on or after December 15, 2008 at a redemption
price equal to the principal amount of the Floating Rate Senior
Notes plus a premium of 102% if redeemed during the
12-month
period commencing on December 15, 2008, 101% if redeemed
during the
12-month
period commencing on December 15, 2009 and 100% if redeemed
during the
12-month
period commencing on December 15, 2010, as well as any
accrued and unpaid interest as of the redemption date. At any
time on or prior to December 15, 2008, we may redeem up to
35% of the principal amount of the Floating Rate Senior Notes
with the net cash proceeds of one or more sales of certain types
of capital stock at a redemption price equal to the product of
(x) the sum of (1) 100% and (2) a percentage
equal to the per annum rate of interest on the Floating Rate
Senior Notes then applicable on the date on which the notice of
redemption is given, and (y) the principal amount thereof,
plus accrued and unpaid interest to the redemption date,
provided that at least 65% of the aggregate principal amount of
the Floating Rate Senior Notes originally issued remains
outstanding after each such redemption. At any time prior to
December 15, 2008, we may also redeem all or a part of the
Floating Rate Senior Notes upon not less than 30 nor more than
60 days prior notice, at a redemption price equal to
100% of the principal amount of the Floating Rate Senior Notes
redeemed plus a specified premium as of, and accrued and unpaid
interest and additional interest, if any, to the redemption date.
Accounts
Receivable Securitization
On November 27, 2007, we entered into the Receivables
Facility, which provides for up to $250 million in funding
accounted for as a secured borrowing, limited to the
availability of eligible receivables, and is secured by certain
domestic trade receivables. The Receivables Facility will
terminate on November 27, 2010. Under the terms of the
Receivables Facility, the company sells, on a revolving basis,
certain domestic trade receivables to HBI Receivables LLC
(Receivables LLC), a wholly-owned bankruptcy-remote
subsidiary that in turn uses the trade receivables to secure the
borrowings, which are funded through conduits that issue
commercial paper in the short-term market and are not affiliated
with us or through committed bank purchasers if the conduits
fail to fund. The assets and liabilities of Receivables LLC are
fully reflected on our Consolidated Balance Sheet, and the
securitization is treated as a secured borrowing for accounting
purposes. The borrowings under the Receivables Facility remain
outstanding throughout the term of the agreement subject to our
maintaining sufficient eligible receivables by continuing to
sell trade receivables to Receivables LLC unless an event of
default occurs. Availability of funding under the facility
depends primarily upon the eligible outstanding receivables
balance. As of December 29, 2007, we had $250 million
outstanding under the Receivables Facility. The outstanding
balance under the Receivables Facility is reported on the
Companys Consolidated Balance Sheet in long-term debt
based on the three-year term of the agreement and the fact that
remittances on the receivables do not automatically reduce the
outstanding borrowings.
We used all $250 million of the proceeds from the
Receivables Facility to make a prepayment of principal under the
Senior Secured Credit Facility. Unless the conduits fail to
fund, the yield on the commercial paper is the conduits
cost to issue the commercial paper plus certain dealer fees, is
considered a financing cost and is included in interest expense
on the Consolidated Statement of Income. If the conduits fail to
fund, the Receivables Facility would be funded through committed
bank purchasers, and the interest rate payable at our option at
the rate announced from time to time by JPMorgan as its prime
rate or at the LIBO Rate (as defined in the Receivables
Facility) plus the applicable margin in effect from time to
time. The average blended rate utilized for the period from
November 27, 2007 through December 29, 2007 was 5.93%.
Notes
Payable
Notes payable were $19.6 million at December 29, 2007
and $14.3 million at December 30, 2006.
We have a short-term revolving facility arrangement with a
Chinese branch of a U.S. bank amounting to RMB
56 million ($7,661) of which $6,334 was outstanding at
December 29, 2007 which accrues interest at
68
5.59%. Borrowings under the facility accrue interest at the
prevailing base lending rates published by the Peoples
Bank of China from time to time less 10%. We were in compliance
with the covenants contained in this facility at
December 29, 2007.
We have a short-term revolving facility arrangement with an
Indian branch of a U.S. bank amounting to INR
259 million ($6,560) of which $6,245 was outstanding at
December 29, 2007 which accrues interest at 10.5%. We were
in compliance with the covenants contained in this facility at
December 29, 2007.
We have other short-term obligations amounting to $6,998 which
consisted of a short-term revolving facility arrangement with a
Japanese branch of a U.S. bank amounting to JPY
1,100 million ($9,671) of which $2,010 was outstanding at
December 29, 2007 which accrues interest at 2.50%, multiple
short-term credit facilities and promissory notes acquired as
part of our acquisition of a sewing facility in Thailand,
totaling THB 200 million ($6,612) of which $1,339 was
outstanding at December 29, 2007 which accrues interest at
an average rate of 5.59%, and a short-term revolving facility
arrangement with a Mexican branch of a U.S. bank amounting
to MXN 163 million ($15,024) of which $3,649 was
outstanding at December 29, 2007 which accrues interest at
9.42%. We were in compliance with the covenants contained in the
facilities at December 29, 2007.
In addition, we have short-term revolving credit facilities in
various other locations that can be drawn on from time to time
amounting to $64 million of which $0 was outstanding at
December 29, 2007.
In connection with the acquisition of Industrias Duraflex, S.A.
de C.V. in August, 2007, we issued a non-interest bearing note
payable to the former owners in the amount of $27 million
that was paid in full as of December 29, 2007.
Derivatives
We are required under the Senior Secured Credit Facility and the
Second Lien Credit Facility to hedge a portion of our floating
rate debt to reduce interest rate risk caused by floating rate
debt issuance. At December 29, 2007, we have outstanding
hedging arrangements whereby we capped the interest rate on
$950 million of our floating rate debt at 5.75%. We also
entered into interest rate swaps tied to the
3-month and
6-month
LIBOR rates whereby we fixed the interest rate on an aggregate
of $600 million of our floating rate debt at a blended rate
of approximately 5.04%. Approximately 67% of our total debt
outstanding at December 29, 2007 is at a fixed or capped
rate. There was no hedge ineffectiveness during the current
period related to these instruments.
We use forward exchange and option contracts to reduce the
effect of fluctuating foreign currencies for a portion of our
anticipated short-term foreign currency-denominated transactions.
Cotton is the primary raw material we use to manufacture many of
our products. We generally purchase our raw materials at market
prices. In the year ended July 1, 2006, we started to use
commodity financial instruments, options and forward contracts
to hedge the price of cotton, for which there is a high
correlation between the hedged item and the hedged instrument.
We generally do not use commodity financial instruments to hedge
other raw material commodity prices.
Off-Balance
Sheet Arrangements
We engage in off-balance sheet arrangements that we believe are
reasonably likely to have a current or future effect on our
financial condition and results of operations. These off-balance
sheet arrangements include operating leases for manufacturing
facilities, warehouses, office space, vehicles and machinery and
equipment.
Minimum operating lease obligations are scheduled to be paid as
follows: $35.4 million in 2008, $29.6 million in 2009,
$25.0 million in 2010, $20.2 million in 2011,
$15.1 million in 2012 and $35.2 million thereafter.
69
Future
Contractual Obligations and Commitments
The following table contains information on our contractual
obligations and commitments as of December 29, 2007.
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At December 29,
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Less Than
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Payments Due by Period
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2007
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1 Year
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1 - 3 Years
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3 - 5 Years
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Thereafter
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(in thousands)
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Long-term debt
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$
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2,315,250
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$
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$
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282,750
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$
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106,250
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$
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1,926,250
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Notes payable
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19,577
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19,577
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|
|
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|
|
|
|
|
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Interest on debt obligations(1)
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991,200
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172,027
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338,994
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298,656
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181,523
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Operating lease obligations
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160,457
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35,413
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54,584
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35,283
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35,177
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Capital lease obligations including related interest payments
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2,051
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990
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1,009
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52
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Purchase obligations(2)
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675,546
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603,377
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26,718
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13,951
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31,500
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Other long-term obligations(3)
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51,072
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18,821
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8,910
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12,707
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10,634
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Total
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$
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4,215,153
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$
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850,205
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$
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712,965
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$
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466,899
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$
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2,185,084
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(1) |
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Interest obligations on floating rate debt instruments are
calculated for future periods using interest rates in effect at
December 29, 2007. |
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(2) |
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Purchase obligations, as disclosed in the table, are
obligations to purchase goods and services in the ordinary
course of business for production and inventory needs (such as
raw materials, supplies, packaging, and manufacturing
arrangements), capital expenditures, marketing services,
royalty-bearing license agreement payments and other
professional services. This table only includes purchase
obligations for which we have agreed upon a fixed or minimum
quantity to purchase, a fixed, minimum or variable pricing
arrangement, and an approximate delivery date. Actual cash
expenditures relating to these obligations may vary from the
amounts shown in the table above. We enter into purchase
obligations when terms or conditions are favorable or when a
long-term commitment is necessary. Many of these arrangements
are cancelable after a notice period without a significant
penalty. This table omits purchase obligations that did not
exist as of December 29, 2007, as well as obligations for
accounts payable and accrued liabilities recorded on the balance
sheet. |
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(3) |
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Represents the projected payment for long-term liabilities
recorded on the balance sheet for deferred compensation,
deferred income and unrecognized tax benefits in accordance with
the FASB Interpretation 48, Accounting for Uncertainty in
Income Taxes (FIN 48). |
Due to our current funded status of our pension plans, we are
not obligated to make any contributions to the plan in the next
year. The future timing of the pension funding obligations
associated with our defined benefit pension and post-retirement
plans beyond the next year is dependent on a number of factors
including investment results and other factors that contribute
to future pension expense and cannot be reasonably estimated at
this time. A discussion of our pension and postretirement plans
is included in Notes 15 and 16 to our Consolidated
Financial Statements. Our obligations for employee health and
property and casualty losses are also excluded from the table.
Pension
Plans
In conjunction with the spin off which occurred on
September 5, 2006, we established the Hanesbrands Inc.
Pension and Retirement Plan, which assumed the portion of the
underfunded liabilities and the portion of the assets of pension
plans sponsored by Sara Lee that relate to our employees. In
addition, we assumed sponsorship of certain other Sara Lee plans
and will continue sponsorship of the Playtex Apparel Inc.
Pension Plan and the National Textiles, L.L.C. Pension Plan.
70
Since the spin off, we have voluntarily contributed
$96 million to our pension plans. Additionally, during 2007
we completed the separation of our pension plan assets and
liabilities from those of Sara Lee in accordance with
governmental regulations, which resulted in a higher total
amount of pension plan assets of approximately $74 million
being transferred to us than originally was estimated prior to
the spin off. Prior to spin off, the fair value of plan assets
included in the annual valuations represented a best estimate
based upon a percentage allocation of total assets of the Sara
Lee trust. Our U.S. qualified pension plans are
approximately 97% funded as of December 29, 2007.
Share
Repurchase Program
On February 1, 2007, we announced that our Board of
Directors granted authority for the repurchase of up to
10 million shares of our common stock. Share repurchases
are made periodically in open-market transactions, and are
subject to market conditions, legal requirements and other
factors. Additionally, management has been granted authority to
establish a trading plan under
Rule 10b5-1
of the Exchange Act in connection with share repurchases, which
will allow use to repurchase shares in the open market during
periods in which the stock trading window is otherwise closed
for our company and certain of our officers and employees
pursuant to our insider trading policy. During 2007, we
purchased 1.6 million shares of our common stock at a cost
of $44.5 million (average price of $27.55). The primary
objective of our share repurchase program is to reduce the
impact of dilution caused by the exercise of options and vesting
of stock unit awards.
Critical
Accounting Policies and Estimates
We have chosen accounting policies that we believe are
appropriate to accurately and fairly report our operating
results and financial position in conformity with accounting
principles generally accepted in the United States. We apply
these accounting policies in a consistent manner. Our
significant accounting policies are discussed in Note 2,
titled Summary of Significant Accounting Policies,
to our Consolidated Financial Statements.
The application of critical accounting policies requires that we
make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and related
disclosures. These estimates and assumptions are based on
historical and other factors believed to be reasonable under the
circumstances. We evaluate these estimates and assumptions on an
ongoing basis and may retain outside consultants to assist in
our evaluation. If actual results ultimately differ from
previous estimates, the revisions are included in results of
operations in the period in which the actual amounts become
known. The critical accounting policies that involve the most
significant management judgments and estimates used in
preparation of our Consolidated Financial Statements, or are the
most sensitive to change from outside factors, are the following:
Sales
Recognition and Incentives
We recognize revenue when (i) there is persuasive evidence
of an arrangement, (ii) the sales price is fixed or
determinable, (iii) title and the risks of ownership have
been transferred to the customer and (iv) collection of the
receivable is reasonably assured, which occurs primarily upon
shipment. We record provisions for any uncollectible amounts
based upon our historical collection statistics and current
customer information. Our management reviews these estimates
each quarter and makes adjustments based upon actual experience.
Note 2(d), titled Summary of Significant Accounting
Policies Sales Recognition and Incentives, to
our Consolidated Financial Statements describes a variety of
sales incentives that we offer to resellers and consumers of our
products. Measuring the cost of these incentives requires, in
many cases, estimating future customer utilization and
redemption rates. We use historical data for similar
transactions to estimate the cost of current incentive programs.
Our management reviews these estimates each quarter and makes
adjustments based upon actual experience and other available
information. For the year ended December 29, 2007, we
changed the manner in which we accounted for cooperative
advertising that resulted in a change in the classification from
media, advertising and promotion expenses to a reduction of
sales. This change in
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classification was made in accordance with
EITF 01-9,
Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products),
because the estimated fair value of the identifiable benefit was
no longer obtained beginning in 2007.
Catalog
Expenses
We incur expenses for printing catalogs for our products to aid
in our sales efforts. We initially record these expenses as a
prepaid item and charge it against selling, general and
administrative expenses over time as the catalog is used.
Expenses are recognized at a rate that approximates our
historical experience with regard to the timing and amount of
sales attributable to a catalog distribution.
Inventory
Valuation
We carry inventory on our balance sheet at the estimated lower
of cost or market. Cost is determined by the
first-in,
first-out, or FIFO, method for our inventories at
December 29, 2007. We carry obsolete, damaged, and excess
inventory at the net realizable value, which we determine by
assessing historical recovery rates, current market conditions
and our future marketing and sales plans. Because our assessment
of net realizable value is made at a point in time, there are
inherent uncertainties related to our value determination.
Market factors and other conditions underlying the net
realizable value may change, resulting in further reserve
requirements. A reduction in the carrying amount of an inventory
item from cost to market value creates a new cost basis for the
item that cannot be reversed at a later period. While we believe
that adequate write-downs for inventory obsolescence have been
provided in the Consolidated Financial Statements, consumer
tastes and preferences will continue to change and we could
experience additional inventory write-downs in the future.
Rebates, discounts and other cash consideration received from a
vendor related to inventory purchases are reflected as
reductions in the cost of the related inventory item, and are
therefore reflected in cost of sales when the related inventory
item is sold.
Income
Taxes
Prior to spin off on September 5, 2006, all income taxes
were computed and reported on a separate return basis as if we
were not part of Sara Lee. Deferred taxes were recognized for
the future tax effects of temporary differences between
financial and income tax reporting using tax rates in effect for
the years in which the differences are expected to reverse. Net
operating loss carryforwards had been determined in our
Consolidated Financial Statements as if we were separate from
Sara Lee, resulting in a different net operating loss
carryforward amount than reflected by Sara Lee. Given our
continuing losses in certain geographic locations on a separate
return basis, a valuation allowance has been established for the
deferred tax assets relating to these specific locations.
Federal income taxes are provided on that portion of our income
of foreign subsidiaries that is expected to be remitted to the
United States and be taxable, reflecting the historical
decisions made by Sara Lee with regards to earnings permanently
reinvested in foreign jurisdictions. In periods after the spin
off, we may make different decisions as to the amount of
earnings permanently reinvested in foreign jurisdictions, due to
anticipated cash flow or other business requirements, which may
impact our federal income tax provision and effective tax rate.
We periodically estimate the probable tax obligations using
historical experience in tax jurisdictions and our informed
judgment. There are inherent uncertainties related to the
interpretation of tax regulations in the jurisdictions in which
we transact business. The judgments and estimates made at a
point in time may change based on the outcome of tax audits, as
well as changes to, or further interpretations of, regulations.
Income tax expense is adjusted in the period in which these
events occur, and these adjustments are included in our
Consolidated Statements of Income. If such changes take place,
there is a risk that our effective tax rate may increase or
decrease in any period. In July 2006, the Financial Accounting
Standards Board (FASB) issued Interpretation 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), which became effective during the
year ended December 29, 2007. FIN 48 addresses the
determination of how tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial
statements. Under FIN 48, a company must
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recognize the tax benefit from an uncertain tax position only if
it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in
the financial statements from such a position are measured based
on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate resolution.
In conjunction with the spin off, we and Sara Lee entered into a
tax sharing agreement, which allocates responsibilities between
us and Sara Lee for taxes and certain other tax matters. Under
the tax sharing agreement, Sara Lee generally is liable for all
U.S. federal, state, local and foreign income taxes
attributable to us with respect to taxable periods ending on or
before September 5, 2006. Sara Lee also is liable for
income taxes attributable to us with respect to taxable periods
beginning before September 5, 2006 and ending after
September 5, 2006, but only to the extent those taxes are
allocable to the portion of the taxable period ending on
September 5, 2006. We are generally liable for all other
taxes attributable to us. Changes in the amounts payable or
receivable by us under the stipulations of this agreement may
impact our tax provision in any period.
Within 180 days after Sara Lee files its final consolidated
tax return for the period that includes September 5, 2006,
Sara Lee is required to deliver to us a computation of the
amount of deferred taxes attributable to our United States and
Canadian operations that would be included on our balance sheet
as of September 6, 2006. If substituting the amount of
deferred taxes as finally determined for the amount of estimated
deferred taxes that were included on that balance sheet at the
time of the spin off causes a decrease in the net book value
reflected on that balance sheet, then Sara Lee will be required
to pay us the amount of such decrease. If such substitution
causes an increase in the net book value reflected on that
balance sheet, then we will be required to pay Sara Lee the
amount of such increase. For purposes of this computation, our
deferred taxes are the amount of deferred tax benefits
(including deferred tax consequences attributable to deductible
temporary differences and carryforwards) that would be
recognized as assets on our balance sheet computed in accordance
with GAAP, but without regard to valuation allowances, less the
amount of deferred tax liabilities (including deferred tax
consequences attributable to deductible temporary differences)
that would be recognized as liabilities on our balance sheet
computed in accordance with GAAP, but without regard to
valuation allowances. Neither we nor Sara Lee will be required
to make any other payments to the other with respect to deferred
taxes.
Stock
Compensation
We established the Hanesbrands Inc. Omnibus Incentive Plan of
2006, the (Omnibus Incentive Plan) to award stock
options, stock appreciation rights, restricted stock, restricted
stock units, deferred stock units, performance shares and cash
to our employees, non-employee directors and employees of our
subsidiaries to promote the interest of our company and incent
performance and retention of employees. We account for
stock-based compensation in accordance with Statement of
Financial Accounting Standards (SFAS) No 123(R),
Share-Based Payment. Under SFAS 123R, stock-based
compensation is estimated at the grant date based on the
awards fair value and is recognized as expense over the
requisite service period. Estimation of stock-based compensation
for stock options granted, utilizing the Black-Scholes
option-pricing model, requires various highly subjective
assumptions including volatility and expected option life. We
use the volatility of peer companies for a period of time that
is comparable to the expected life of the option to determine
volatility assumptions. We have utilized the simplified method
outlined in SEC Staff Accounting Bulletin No. 107 to
estimate expected lives of options granted during the period.
SEC Staff Accounting Bulletin (SAB) No. 110, which was
issued in December 2007, amends SEC Staff Accounting
Bulletin No. 107 and gives a limited extension on
using the simplified method for valuing stock option grants to
eligible public companies that do not have sufficient historical
exercise patterns on options granted to employees. Further, as
required under SFAS No. 123R, we estimate forfeitures
for stock-based awards granted, which are not expected to vest.
If any of these inputs or assumptions changes significantly, our
stock-based compensation expense could be materially different
in the future.
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Defined
Benefit Pension and Postretirement Healthcare and Life Insurance
Plans
For a discussion of our net periodic benefit cost, plan
obligations, plan assets, and how we measure the amount of these
costs, see Notes 15 and 16 titled Defined Benefit
Pension Plans and Postretirement Healthcare and Life
Insurance Plans, respectively, to our Consolidated
Financial Statements.
In conjunction with the spin off from Sara Lee which occurred on
September 5, 2006, we established the Hanesbrands Inc.
Pension and Retirement Plan, which assumed the portion of the
underfunded liabilities and the portion of the assets of pension
plans sponsored by Sara Lee that relate to our employees. In
addition, we assumed sponsorship of certain other Sara Lee plans
and will continue sponsorship of the Playtex Apparel Inc.
Pension Plan and the National Textiles, L.L.C. Pension Plan. As
of January 1, 2006, the benefits under these plans were
frozen. Since the spin off, we have voluntarily contributed
$96 million to our pension plans. Additionally, during 2007
we completed the separation of our pension plan assets and
liabilities from those of Sara Lee in accordance with
governmental regulations, which resulted in a higher total
amount of pension plan assets of approximately $74 million
being transferred to us than originally was estimated prior to
the spin off. As a result, our U.S. qualified pension plans
are approximately 97% funded as of December 29, 2007.
In December 2006, we changed the postretirement plan benefits to
(a) pass along a higher share of retiree medical costs to
all retirees effective February 1, 2007, (b) eliminate
company contributions toward premiums for retiree medical
coverage effective December 1, 2007, (c) eliminate
retiree medical coverage options for all current and future
retirees age 65 and older and (d) eliminate future
postretirement life benefits. Gains associated with these plan
amendments were amortized throughout the year ended
December 29, 2007 in anticipation of the effective
termination of the medical plan on December 1, 2007. On
December 1, 2007 we effectively terminated all retiree
medical coverage. A final gain on curtailment of
$32 million was recorded in the Consolidated Statement of
Income in the fourth quarter of the year ended December 29,
2007. Concurrently with the termination of the existing plan, we
established a new access only plan that is fully paid by the
participants.
In September 2006, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An Amendment of FASB
No. 87, 88, 106 and 132(R) (SFAS 158).
SFAS 158 requires that the funded status of defined benefit
postretirement plans be recognized on a companys balance
sheet, and changes in the funded status be reflected in
comprehensive income, effective fiscal years ending after
December 15, 2006, which we adopted as of and for the six
months ended December 30, 2006. The impact of adopting the
funded status provisions of SFAS 158 was an increase in
assets of $1 million, an increase in liabilities of
$26 million and a pretax increase in the accumulated other
comprehensive loss of $32 million. SFAS 158 also
requires companies to measure the funded status of the plan as
of the date of its fiscal year end, effective for fiscal years
ending after December 15, 2008. We adopted the measurement
date provision during the year ended December 29, 2007,
which had an immaterial impact on beginning retained earnings,
accumulated other comprehensive income and pension liabilities.
The net periodic cost of the pension and postretirement plans is
determined using projections and actuarial assumptions, the most
significant of which are the discount rate, the long-term rate
of asset return, and medical trend (rate of growth for medical
costs). The net periodic pension and postretirement income or
expense is recognized in the year incurred. Gains and losses,
which occur when actual experience differs from actuarial
assumptions, are amortized over the average future service
period of employees.
Our policies regarding the establishment of pension assumptions
are as follows:
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In determining the discount rate, we utilized the Citigroup
Pension Discount Curve (rounded to the nearest 10 basis
points) in order to determine a unique interest rate for each
plan and match the expected cash flows for each plan.
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Salary increase assumptions were based on historical experience
and anticipated future management actions. The salary increase
assumption applies to the Canadian plans and portions of the
Hanesbrands nonqualified retirement plans, as benefits under
these plans are not frozen.
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In determining the long-term rate of return on plan assets we
applied a proportionally weighted blend between assuming the
historical long-term compound growth rate of the plan portfolio
would predict the future returns of similar investments, and the
utilization of forward looking assumptions.
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Retirement rates were based primarily on actual experience while
standard actuarial tables were used to estimate mortality.
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Trademarks
and Other Identifiable Intangibles
Trademarks and computer software are our primary identifiable
intangible assets. We amortize identifiable intangibles with
finite lives, and we do not amortize identifiable intangibles
with indefinite lives. We base the estimated useful life of an
identifiable intangible asset upon a number of factors,
including the effects of demand, competition, expected changes
in distribution channels and the level of maintenance
expenditures required to obtain future cash flows. As of
December 29, 2007, the net book value of trademarks and
other identifiable intangible assets was $151 million, of
which we are amortizing the entire balance. We anticipate that
our amortization expense for 2008 will be $10 million.
We evaluate identifiable intangible assets subject to
amortization for impairment using a process similar to that used
to evaluate asset amortization described below under
Depreciation and Impairment of Property, Plant
and Equipment. We assess identifiable intangible assets
not subject to amortization for impairment at least annually and
more often as triggering events occur. In order to determine the
impairment of identifiable intangible assets not subject to
amortization, we compare the fair value of the intangible asset
to its carrying amount. We recognize an impairment loss for the
amount by which an identifiable intangible assets carrying
value exceeds its fair value.
We measure a trademarks fair value using the royalty saved
method. We determine the royalty saved method by evaluating
various factors to discount anticipated future cash flows,
including operating results, business plans, and present value
techniques. The rates we use to discount cash flows are based on
interest rates and the cost of capital at a point in time.
Because there are inherent uncertainties related to these
factors and our judgment in applying them, the assumptions
underlying the impairment analysis may change in such a manner
that impairment in value may occur in the future. Such
impairment will be recognized in the period in which it becomes
known.
Goodwill
As of December 29, 2007, we had $310 million of
goodwill. We do not amortize goodwill, but we assess for
impairment at least annually and more often as triggering events
occur. During the third quarter of the year ended
December 29, 2007, we changed the timing of our annual
goodwill impairment testing to the first day of the third fiscal
quarter. Prior to year ended December 29, 2007, our policy
was to perform the test at the end of the second fiscal quarter
which coincided with Sara Lees policy before the spin off.
The change in the annual goodwill impairment testing date was
made following the change in our fiscal year-end from the
Saturday closest to June 30 to the Saturday closest to December
31 and results in the testing continuing to be performed in the
middle of our fiscal year. In addition, this change in
accounting principle better aligns the annual goodwill
impairment test with the timing of our annual long range
planning cycle. The change in accounting principle does not
delay, accelerate or avoid an impairment charge. Accordingly, we
believe that the change in accounting principle described above
is preferable under the circumstances.
In evaluating the recoverability of goodwill, we estimate the
fair value of our reporting units. We have determined that our
reporting units are at the operating segment level. We rely on a
number of factors to determine the fair value of our reporting
units and evaluate various factors to discount anticipated
future cash flows, including operating results, business plans,
and present value techniques. As discussed above under
Trademarks and Other Identifiable Intangibles, there
are inherent uncertainties related to these factors, and our
judgment in applying them and the assumptions underlying the
impairment analysis may change in such a manner that impairment
in value may occur in the future. Such impairment will be
recognized in the period in which it becomes known.
75
We evaluate the recoverability of goodwill using a two-step
process based on an evaluation of reporting units. The first
step involves a comparison of a reporting units fair value
to its carrying value. In the second step, if the reporting
units carrying value exceeds its fair value, we compare
the goodwills implied fair value and its carrying value.
If the goodwills carrying value exceeds its implied fair
value, we recognize an impairment loss in an amount equal to
such excess.
Depreciation
and Impairment of Property, Plant and Equipment
We state property, plant and equipment at its historical cost,
and we compute depreciation using the straight-line method over
the assets life. We estimate an assets life based on
historical experience, manufacturers estimates,
engineering or appraisal evaluations, our future business plans
and the period over which the asset will economically benefit
us, which may be the same as or shorter than its physical life.
Our policies require that we periodically review our
assets remaining depreciable lives based upon actual
experience and expected future utilization. A change in the
depreciable life is treated as a change in accounting estimate
and the accelerated depreciation is accounted for in the period
of change and future periods. Based upon current levels of
depreciation, the average remaining depreciable life of our net
property other than land is five years.
We test an asset for recoverability whenever events or changes
in circumstances indicate that its carrying value may not be
recoverable. Such events include significant adverse changes in
business climate, several periods of operating or cash flow
losses, forecasted continuing losses or a current expectation
that an asset or asset group will be disposed of before the end
of its useful life. We evaluate an assets recoverability
by comparing the asset or asset groups net carrying amount
to the future net undiscounted cash flows we expect such asset
or asset group will generate. If we determine that an asset is
not recoverable, we recognize an impairment loss in the amount
by which the assets carrying amount exceeds its estimated
fair value.
When we recognize an impairment loss for an asset held for use,
we depreciate the assets adjusted carrying amount over its
remaining useful life. We do not restore previously recognized
impairment losses if circumstances change.
Insurance
Reserves
We maintain insurance coverage for property, workers
compensation and other casualty programs. We are responsible for
losses up to certain limits and are required to estimate a
liability that represents the ultimate exposure for aggregate
losses below those limits. This liability is based on
managements estimates of the ultimate costs to be incurred
to settle known claims and claims not reported as of the balance
sheet date. The estimated liability is not discounted and is
based on a number of assumptions and factors, including
historical trends, actuarial assumptions and economic
conditions. If actual trends differ from the estimates, the
financial results could be impacted.
Assets
and Liabilities Acquired in Business Combinations
We account for business acquisitions using the purchase method,
which requires us to allocate the cost of an acquired business
to the acquired assets and liabilities based on their estimated
fair values at the acquisition date. We recognize the excess of
an acquired businesss cost over the fair value of acquired
assets and liabilities as goodwill as discussed below under
Goodwill. We use a variety of information sources to
determine the fair value of acquired assets and liabilities. We
generally use third-party appraisers to determine the fair value
and lives of property and identifiable intangibles, consulting
actuaries to determine the fair value of obligations associated
with defined benefit pension plans, and legal counsel to assess
obligations associated with legal and environmental claims.
76
Recently
Issued Accounting Standards
Fair
Value Measurements
The FASB has issued SFAS No. 157, Fair Value
Measurements, or SFAS 157, which provides
guidance for using fair value to measure assets and liabilities.
The standard also responds to investors requests for more
information about (1) the extent to which companies measure
assets and liabilities at fair value, (2) the information
used to measure fair value, and (3) the effect that
fair-value measurements have on earnings. SFAS 157 will
apply whenever another standard requires (or permits) assets or
liabilities to be measured at fair value. The standard does not
expand the use of fair value to any new circumstances.
SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. We are currently evaluating
the impact, if any, of SFAS 157 on our results of
operations and financial position.
Fair
Value Option for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159 permits
companies to choose to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value and establishes
presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. The
provisions of SFAS 159 become effective for fiscal years
beginning after November 15, 2007. We are currently
evaluating the impact, if any, that SFAS 159 will have on
our results of operations and financial position.
Business
Combinations
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141R). The objective of SFAS 141 is
to improve the relevance, representational faithfulness, and
comparability of the information that a company provides in its
financial reports about a business combination and its effects.
Under SFAS 141R, a company is required to recognize the
assets acquired, liabilities assumed, contractual contingencies,
contingent consideration measured at their fair value at the
acquisition date. It further required that research and
development assets acquired in a business combination that have
no alternative future use to be measured at their
acquisition-date fair value and then immediately charged to
expense, and that acquisition-related costs are to be recognized
separately from the acquisition and expensed as incurred. Among
other changes, this statement also required that negative
goodwill be recognized in earnings as a gain attributable
to the acquisition, and any deferred tax benefits resulting from
a business combination are recognized in income from continuing
operations in the period of the combination. SFAS 141R is
effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). The objective of this Statement is
to improve the relevance, comparability, and transparency of the
financial information that a company provides in its
consolidated financial statements. SFAS 160 requires a
company to clearly identify and present ownership interests in
subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but
separate from the companys equity. It also requires the
amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income;
changes in ownership interest be accounted for similarly, as
equity transactions; and when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former
subsidiary and the gain or loss on the deconsolidation of the
subsidiary be measured at fair value. SFAS 160 is effective
for fiscal years, and interim periods within those fiscal years,
beginning on or after
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December 15, 2008. We are currently evaluating the impact
that SFAS 160 will have on our results of operations and
financial position.
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Item 7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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We are exposed to market risk from changes in foreign exchange
rates, interest rates and commodity prices. Our risk management
control system uses analytical techniques including market
value, sensitivity analysis and value at risk estimations.
Foreign
Exchange Risk
We sell the majority of our products in transactions denominated
in U.S. dollars; however, we purchase some raw materials,
pay a portion of our wages and make other payments in our supply
chain in foreign currencies. Our exposure to foreign exchange
rates exists primarily with respect to the Canadian dollar,
Mexican peso and Japanese yen against the U.S. dollar. We
use foreign exchange forward and option contracts to hedge
material exposure to adverse changes in foreign exchange rates.
A sensitivity analysis technique has been used to evaluate the
effect that changes in the market value of foreign exchange
currencies will have on our forward and option contracts. At
December 29, 2007, the potential change in fair value of
foreign currency derivative instruments, assuming a 10% adverse
change in the underlying currency price, was $4.0 million.
Interest
Rates
We are required under the Senior Secured Credit Facility and the
Second Lien Credit Facility to hedge a portion of our floating
rate debt to reduce interest rate risk caused by floating rate
debt issuance. At December 29, 2007, we have outstanding
hedging arrangements whereby we capped the interest rate on
$950 million of our floating rate debt at 5.75%. We also
entered into interest rate swaps tied to the
3-month and
6-month
LIBOR rates whereby we fixed the interest rate on an aggregate
of $600 million of our floating rate debt at a blended rate
of approximately 5.04%. Approximately 67% of our total debt
outstanding at December 29, 2007 is at a fixed or capped
rate. After giving effect to these arrangements, a 25-basis
point movement in the annual interest rate charged on the
outstanding debt balances as of December 29, 2007 would
result in a change in annual interest expense of
$4.3 million.
Commodities
Cotton is the primary raw material we use to manufacture many of
our products. In addition, fluctuations in crude oil or
petroleum prices may influence the prices of other raw materials
we use to manufacture our products, such as chemicals,
dyestuffs, polyester yarn and foam. We generally purchase our
raw materials at market prices. In the year ended July 1,
2006, we started to use commodity financial instruments to hedge
the price of cotton, for which there is a high correlation
between costs and the financial instrument. We generally do not
use commodity financial instruments to hedge other raw material
commodity prices. At December 29, 2007, the potential
change in fair value of cotton commodity derivative instruments,
assuming a 10% adverse change in the underlying commodity price,
was $1.2 million.
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Item 8.
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Financial
Statements and Supplementary Data
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Our financial statements required by this item are contained on
pages F-1 through F-69 of this Annual Report on
Form 10-K.
See Item 15(a)(1) for a listing of financial statements
provided.
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Item 9.
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Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
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None
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Item 9A.
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Controls
and Procedures
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Disclosure
Controls and Procedures
As required by Exchange Act
Rule 13a-15(b),
our management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness
of our disclosure controls and procedures, as defined in
Exchange Act
Rule 13a-15(e),
as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
were effective.
Internal
Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in Exchange Act
Rule 13a-15(f).
Managements annual report on internal control over
financial reporting and the report of independent registered
public accounting firm are incorporated by reference to pages
F-2 and F-3 of this Annual Report on
Form 10-K.
Changes
in Internal Control over Financial Reporting
In connection with the evaluation required by Exchange Act
Rule 13a-15(d),
our management, including the Chief Executive Officer and Chief
Financial Officer, concluded that no changes in our internal
control over financial reporting occurred during the period
covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
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Item 9B.
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Other
Information
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None.
PART III
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Item 10.
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Directors,
Executive Officers and Corporate Governance
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Information required by this Item 10 regarding our
executive officers is included in Item 1C of this Annual
Report on
Form 10-K.
We will provide other information that is responsive to this
Item 10 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report.
That information is incorporated in this Item 10 by
reference.
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Item 11.
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Executive
Compensation
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We will provide information that is responsive to this
Item 11 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report.
That information is incorporated in this Item 11 by
reference.
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Item 12.
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Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
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We will provide information that is responsive to this
Item 12 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report.
That information is incorporated in this Item 12 by
reference.
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Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
We will provide information that is responsive to this
Item 13 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report.
That information is incorporated in this Item 13 by
reference.
79
|
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Item 14.
|
Principal
Accountant Fees and Services
|
We will provide information that is responsive to this
Item 14 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report.
That information is incorporated in this Item 14 by
reference.
PART IV
|
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Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)(1)-(2)
Financial Statements and Schedules
The financial statements and schedules listed in the
accompanying Index to Consolidated Financial Statements on
page F-1
are filed as part of this Report.
(a)(3)
Exhibits
See Index to Exhibits beginning on
page E-1,
which is incorporated by reference herein. The Index to Exhibits
lists all exhibits filed with this Report and identifies which
of those exhibits are management contracts and compensation
plans.
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this
Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized, on the
19th day
of February, 2008.
HANESBRANDS INC.
Richard A. Noll
Chief Executive Officer
POWER OF
ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints jointly and
severally, Richard A. Noll, E. Lee Wyatt Jr. and Joia M.
Johnson, and each one of them, his or her attorneys-in-fact,
each with the power of substitution, for him or her in any and
all capacities, to sign any and all amendments to this Annual
Report on
Form 10-K
and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said
attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on
Form 10-K
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
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Signature
|
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Capacity
|
|
Date
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|
|
|
|
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|
/s/ Richard
A. Noll
Richard
A. Noll
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Chief Executive Officer and Director (principal executive
officer)
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February 19, 2008
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/s/ E.
Lee Wyatt Jr.
E.
Lee Wyatt Jr.
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Executive Vice President, Chief Financial Officer
(principal financial officer)
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February 19, 2008
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/s/ Dale
W. Boyles
Dale
W. Boyles
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Vice President, Chief Accounting Officer and Controller
(principal accounting officer)
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February 19, 2008
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/s/ Lee
A. Chaden
Lee
A. Chaden
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Chairman of the Board of Directors
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February 19, 2008
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/s/ Harry
A. Cockrell
Harry
A. Cockrell
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Director
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February 19, 2008
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/s/ Charles
W. Coker
Charles
W. Coker
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Director
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February 19, 2008
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/s/ Bobby
J. Griffin
Bobby
J. Griffin
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Director
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February 19, 2008
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/s/ James
C. Johnson
James
C. Johnson
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Director
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|
February 19, 2008
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81
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Signature
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Capacity
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Date
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/s/ Jessica
T. Mathews
Jessica
T. Mathews
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Director
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February 19, 2008
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/s/ J.
Patrick Mulcahy
J.
Patrick Mulcahy
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Director
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February 19, 2008
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/s/ Alice
M. Peterson
Alice
M. Peterson
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Director
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February 19, 2008
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/s/ Andrew
J. Schindler
Andrew
J. Schindler
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Director
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February 19, 2008
|
82
INDEX TO
EXHIBITS
References in this Index to Exhibits to the
Registrant are to Hanesbrands Inc. The Registrant
will furnish you, without charge, a copy of any exhibit, upon
written request. Written requests to obtain any exhibit should
be sent to Corporate Secretary, Hanesbrands Inc., 1000 East
Hanes Mill Road, Winston-Salem, North Carolina 27105.
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Exhibit
|
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|
Number
|
|
Description
|
|
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3
|
.1
|
|
Articles of Amendment and Restatement of Hanesbrands Inc.
(incorporated by reference from Exhibit 3.1 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).
|
|
3
|
.2
|
|
Articles Supplementary (Junior Participating Preferred
Stock, Series A) (incorporated by reference from
Exhibit 3.2 to the Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).
|
|
3
|
.3
|
|
Amended and Restated Bylaws of Hanesbrands Inc. (incorporated by
reference from Exhibit 3.1 to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 27, 2007).
|
|
3
|
.4
|
|
Certificate of Formation of BA International, L.L.C.
(incorporated by reference from Exhibit 3.4 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.5
|
|
Limited Liability Company Agreement of BA International, L.L.C.
(incorporated by reference from Exhibit 3.5 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.6
|
|
Certificate of Incorporation of Caribesock, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.6 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.7
|
|
Bylaws of Caribesock, Inc. (incorporated by reference from
Exhibit 3.7 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.8
|
|
Certificate of Incorporation of Caribetex, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.8 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.9
|
|
Bylaws of Caribetex, Inc. (incorporated by reference from
Exhibit 3.9 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.10
|
|
Certificate of Formation of CASA International, LLC
(incorporated by reference from Exhibit 3.10 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.11
|
|
Limited Liability Company Agreement of CASA International, LLC
(incorporated by reference from Exhibit 3.11 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.12
|
|
Certificate of Incorporation of Ceibena Del, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.12 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.13
|
|
Bylaws of Ceibena Del, Inc. (incorporated by reference from
Exhibit 3.13 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.14
|
|
Certificate of Formation of Hanes Menswear, LLC, together with
Certificate of Conversion from a Corporation to a Limited
Liability Company Pursuant to
Section 18-214
of the Limited Liability Company Act and Certificate of Change
of Location of Registered Office and Registered Agent
(incorporated by reference from Exhibit 3.14 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
83
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.15
|
|
Limited Liability Company Agreement of Hanes Menswear, LLC
(incorporated by reference from Exhibit 3.15 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
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3
|
.16
|
|
Certificate of Incorporation of HPR, Inc., together with
Certificate of Merger of Hanes Puerto Rico, Inc. into HPR, Inc.
(now known as Hanes Puerto Rico, Inc.) (incorporated by
reference from Exhibit 3.16 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.17
|
|
Bylaws of Hanes Puerto Rico, Inc. (incorporated by reference
from Exhibit 3.17 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.18
|
|
Articles of Organization of Sara Lee Direct, LLC, together with
Articles of Amendment reflecting the change of the entitys
name to Hanesbrands Direct, LLC (incorporated by reference from
Exhibit 3.18 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.19
|
|
Limited Liability Company Agreement of Sara Lee Direct, LLC (now
known as Hanesbrands Direct, LLC) (incorporated by reference
from Exhibit 3.19 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
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|
3
|
.20
|
|
Certificate of Incorporation of Sara Lee Distribution, Inc.,
together with Certificate of Amendment of Certificate of
Incorporation of Sara Lee Distribution, Inc. reflecting the
change of the entitys name to Hanesbrands Distribution,
Inc. (incorporated by reference from Exhibit 3.20 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.21
|
|
Bylaws of Sara Lee Distribution, Inc. (now known as Hanesbrands
Distribution, Inc.)(incorporated by reference from
Exhibit 3.21 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.22
|
|
Certificate of Formation of HBI Branded Apparel Enterprises, LLC
(incorporated by reference from Exhibit 3.22 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.23
|
|
Operating Agreement of HBI Branded Apparel Enterprises, LLC
(incorporated by reference from Exhibit 3.23 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.24
|
|
Certificate of Incorporation of HBI Branded Apparel Limited,
Inc. (incorporated by reference from Exhibit 3.24 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.25
|
|
Bylaws of HBI Branded Apparel Limited, Inc. (incorporated by
reference from Exhibit 3.25 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.26
|
|
Certificate of Formation of HbI International, LLC (incorporated
by reference from Exhibit 3.26 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.27
|
|
Limited Liability Company Agreement of HbI International, LLC
(incorporated by reference from Exhibit 3.27 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.28
|
|
Certificate of Formation of SL Sourcing, LLC, together with
Certificate of Amendment to the Certificate of Formation of SL
Sourcing, LLC reflecting the change of the entitys name to
HBI Sourcing, LLC (incorporated by reference from
Exhibit 3.28 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.29
|
|
Limited Liability Company Agreement of SL Sourcing, LLC (now
known as HBI Sourcing, LLC) (incorporated by reference from
Exhibit 3.29 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
84
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.30
|
|
Certificate of Formation of Inner Self LLC (incorporated by
reference from Exhibit 3.30 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.31
|
|
Limited Liability Company Agreement of Inner Self LLC
(incorporated by reference from Exhibit 3.31 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.32
|
|
Certificate of Formation of Jasper-Costa Rica, L.L.C.
(incorporated by reference from Exhibit 3.32 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.33
|
|
Amended and Restated Limited Liability Company Agreement of
Jasper-Costa Rica, L.L.C.(incorporated by reference from
Exhibit 3.33 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.34
|
|
Certificate of Formation of Playtex Dorado, LLC, together with
Certificate of Conversion from a Corporation to a Limited
Liability Company Pursuant to
Section 18-214
of the Limited Liability Company Act (incorporated by reference
from Exhibit 3.36 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.35
|
|
Amended and Restated Limited Liability Company Agreement of
Playtex Dorado, LLC(incorporated by reference from
Exhibit 3.37 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.36
|
|
Certificate of Incorporation of Playtex Industries, Inc.
(incorporated by reference from Exhibit 3.38 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.37
|
|
Bylaws of Playtex Industries, Inc. (incorporated by reference
from Exhibit 3.39 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.38
|
|
Certificate of Formation of Seamless Textiles, LLC, together
with Certificate of Conversion from a Corporation to a Limited
Liability Company Pursuant to
Section 18-214
of the Limited Liability Company Act (incorporated by reference
from Exhibit 3.40 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.39
|
|
Limited Liability Company Agreement of Seamless Textiles, LLC
(incorporated by reference from Exhibit 3.41 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.41
|
|
Certificate of Incorporation of UPCR, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.42 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.42
|
|
Bylaws of UPCR, Inc. (incorporated by reference from
Exhibit 3.43 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.43
|
|
Certificate of Incorporation of UPEL, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.44 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.44
|
|
Bylaws of UPEL, Inc. (incorporated by reference from
Exhibit 3.45 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
4
|
.1
|
|
Rights Agreement between Hanesbrands Inc. and Computershare
Trust Company, N.A., Rights Agent. (incorporated by
reference from Exhibit 4.1 to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).
|
85
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
4
|
.2
|
|
Form of Rights Certificate (incorporated by reference from
Exhibit 4.2 to the Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).
|
|
4
|
.3
|
|
Placement Agreement, dated December 11, 2006, among
Hanesbrands Inc., certain subsidiaries of Hanesbrands Inc.,
Morgan Stanley & Co. Incorporated and Merrill Lynch,
Pierce, Fenner & Smith Incorporated (incorporated by
reference from Exhibit 4.2 to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
December 15, 2006).
|
|
4
|
.4
|
|
Indenture, dated as of December 14, 2006, among Hanesbrands
Inc., certain subsidiaries of Hanesbrands Inc., and Branch
Banking and Trust Company, as Trustee (incorporated by
reference from Exhibit 4.2 to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
December 20, 2006).
|
|
4
|
.5
|
|
Registration Rights Agreement with respect to Floating Rate
Senior Notes due 2014, dated as of December 14, 2006, among
Hanesbrands Inc., certain subsidiaries of Hanesbrands Inc., and
Morgan Stanley & Co. Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, ABN AMRO
Incorporated, Barclays Capital Inc., Citigroup Global Markets
Inc., and HSBC Securities (USA) Inc. (incorporated by reference
from Exhibit 4.2 to the Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
December 20, 2006).
|
|
10
|
.1
|
|
Hanesbrands Inc. Omnibus Incentive Plan of 2006 (incorporated by
reference from Exhibit 10.1 to the Registrants
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.2
|
|
Form of Stock Option Grant Notice and Agreement under the
Hanesbrands Inc. Omnibus Incentive Plan of 2006 (incorporated by
reference from Exhibit 10.3 to the Registrants
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.3
|
|
Form of Restricted Stock Unit Grant Notice and Agreement under
the Hanesbrands Inc. Omnibus Incentive Plan of 2006.
(incorporated by reference from Exhibit 10.4 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.4
|
|
Form of Non-Employee Director Restricted Stock Unit Grant Notice
and Agreement under the Hanesbrands Inc. Omnibus Incentive Plan
of 2006.*
|
|
10
|
.5
|
|
Form of Non-Employee Director Stock Option Grant Notice and
Agreement under the Hanesbrands Inc. Omnibus Incentive Plan of
2006 (incorporated by reference from Exhibit 10.5 to the
Registrants Transition Report on
Form 10-K
filed with the Securities and Exchange Commission on
February 22, 2007).*
|
|
10
|
.6
|
|
Hanesbrands Inc. Retirement Savings Plan (incorporated by
reference from Exhibit 10.5 to the Registrants
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.7
|
|
Hanesbrands Inc. Supplemental Employee Retirement Plan
(incorporated by reference from Exhibit 10.6 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.8
|
|
Hanesbrands Inc. Performance-Based Annual Incentive Plan
(incorporated by reference from Exhibit 10.7 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.9
|
|
Hanesbrands Inc. Executive Deferred Compensation Plan
(incorporated by reference from Exhibit 10.8 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.10
|
|
Hanesbrands Inc. Executive Life Insurance Plan (incorporated by
reference from Exhibit 10.9 to the Registrants
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.11
|
|
Hanesbrands Inc. Executive Long-Term Disability Plan
(incorporated by reference from Exhibit 10.10 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.12
|
|
Hanesbrands Inc. Employee Stock Purchase Plan of 2006
(incorporated by reference from Exhibit 10.11 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
86
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.13
|
|
Hanesbrands Inc. Non-Employee Director Deferred Compensation
Plan (incorporated by reference from Exhibit 10.12 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.14
|
|
Severance/Change in Control Agreement dated September 1,
2006 between the Registrant and Richard A. Noll (incorporated by
reference from Exhibit 10.13 to the Registrants
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.15
|
|
Severance/Change in Control Agreement dated September 1,
2006 between the Registrant and Joan P. McReynolds
(incorporated by reference from Exhibit 10.14 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.16
|
|
Severance/Change in Control Agreement dated September 1,
2006 between the Registrant and Kevin D. Hall (incorporated by
reference from Exhibit 10.15 to the Registrants
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.17
|
|
Severance/Change in Control Agreement dated September 1,
2006 between the Registrant and Gerald W. Evans Jr.
(incorporated by reference from Exhibit 10.17 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.18
|
|
Severance/Change in Control Agreement dated September 1,
2006 between the Registrant and E. Lee Wyatt Jr.
(incorporated by reference from Exhibit 10.18 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).
|
|
10
|
.19
|
|
Severance/Change in Control Agreement dated September 1,
2006 between the Registrant and Lee A. Chaden (incorporated
by reference from Exhibit 10.19 to the Registrants
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.20
|
|
Severance/Change in Control Agreement dated September 1,
2006 between the Registrant and Kevin W. Oliver (incorporated by
reference from Exhibit 10.20 to the Registrants
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).*
|
|
10
|
.21
|
|
Severance/Change in Control Agreement dated March 5, 2007
between the Registrant and Joia M. Johnson (incorporated by
reference from Exhibit 10.22 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).*
|
|
10
|
.22
|
|
Severance/Change in Control Agreement dated January 24,
2008 between the Registrant and William J. Nictakis.*
|
|
10
|
.23
|
|
Master Separation Agreement dated August 31, 2006 between
the Registrant and Sara Lee Corporation (incorporated by
reference from Exhibit 10.21 to the Registrants
Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
September 28, 2006).
|
|
10
|
.24
|
|
Tax Sharing Agreement dated August 31, 2006 between the
Registrant and Sara Lee Corporation (incorporated by reference
from Exhibit 10.22 to the Registrants Annual Report
on
Form 10-K
filed with the Securities and Exchange Commission on
September 28, 2006).
|
|
10
|
.25
|
|
Employee Matters Agreement dated August 31, 2006 between
the Registrant and Sara Lee Corporation (incorporated by
reference from Exhibit 10.23 to the Registrants
Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
September 28, 2006).
|
|
10
|
.26
|
|
Master Transition Services Agreement dated August 31, 2006
between the Registrant and Sara Lee Corporation (incorporated by
reference from Exhibit 10.24 to the Registrants
Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
September 28, 2006).
|
|
10
|
.27
|
|
Real Estate Matters Agreement dated August 31, 2006 between
the Registrant and Sara Lee Corporation (incorporated by
reference from Exhibit 10.25 to the Registrants
Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
September 28, 2006).
|
|
10
|
.28
|
|
Indemnification and Insurance Matters Agreement dated
August 31, 2006 between the Registrant and Sara Lee
Corporation (incorporated by reference from Exhibit 10.26
to the Registrants Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
September 28, 2006).
|
|
10
|
.29
|
|
Intellectual Property Matters Agreement dated August 31,
2006 between the Registrant and Sara Lee Corporation
(incorporated by reference from Exhibit 10.27 to the
Registrants Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
September 28, 2006).
|
87
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.30
|
|
First Lien Credit Agreement dated September 5, 2006 (the
Senior Secured Credit Facility) between the
Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Stanley Senior Funding, Inc., as
co-syndication agents and the joint lead arrangers and joint
bookrunners, Citicorp USA, Inc. as administrative agent and
Citibank, N.A. as collateral agent (incorporated by reference
from Exhibit 10.28 to the Registrants Annual Report
on
Form 10-K
filed with the Securities and Exchange Commission on
September 28, 2006).
|
|
10
|
.31
|
|
First Amendment dated February 22, 2007 among the
Registrant and the Lenders (as that term is defined in the
Senior Secured Credit Facility) to the Senior Secured Credit
Facility (incorporated by reference from Exhibit 10.1 to
the Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 28, 2007).
|
|
10
|
.32
|
|
Second Lien Credit Agreement dated September 5, 2006
between HBI Branded Apparel Limited, Inc. and the Registrant and
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Morgan Stanley Senior Funding, Inc., as co-syndication agents
and the joint lead arrangers and joint bookrunners, Citicorp
USA, Inc. as administrative agent and Citibank, N.A. as
collateral agent (incorporated by reference from
Exhibit 10.29 to the Registrants Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
September 28, 2006).
|
|
10
|
.33
|
|
Bridge Loan Agreement dated September 5, 2006 between the
Registrant, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Stanley Senior Funding, Inc., as
co-syndication agents and the joint lead arrangers and joint
bookrunners and Morgan Stanley Senior Funding, Inc. as
administrative agent (incorporated by reference from
Exhibit 10.30 to the Registrants Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
September 28, 2006).
|
|
10
|
.34 .
|
|
Receivables Purchase Agreement dated as of November 27,
2007 among HBI Receivables LLC and the Registrant, JPMorgan
Chase Bank, N.A. and HSBC Bank USA, National Association, as
committed purchasers, Falcon Asset Securitization Company LLC
and Bryant Park Funding LLC, as conduit purchasers, JPMorgan
Chase Bank, N.A. and HSBC Securities (USA) Inc., as managing
agents, and JPMorgan Chase Bank, N.A., as agent.
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
24
|
.1
|
|
Powers of Attorney (included on the signature pages hereto).
|
|
31
|
.1
|
|
Certification of Richard A. Noll, Chief Executive Officer.
|
|
31
|
.2
|
|
Certification of E. Lee Wyatt Jr., Chief Financial Officer.
|
|
32
|
.1
|
|
Section 1350 Certification of Richard A. Noll, Chief
Executive Officer.
|
|
32
|
.2
|
|
Section 1350 Certification of E. Lee Wyatt Jr., Chief
Financial Officer.
|
|
|
|
* |
|
Agreement relates to executive compensation. |
|
|
|
Portions of this exhibit were redacted pursuant to a
confidential treatment request filed with the Secretary of the
Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. |
88
Hanesbrands
Inc.
Managements
Report on Internal Control Over Financial Reporting
Management of Hanesbrands Inc. (Hanesbrands) is
responsible for establishing and maintaining adequate internal
control over financial reporting as defined in
Rules 13a − 15(f) under the Securities and
Exchange Act of 1934. Internal control over financial reporting
is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States.
Hanesbrands system of internal control over financial
reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of Hanesbrands;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States, and that receipts and
expenditures of Hanesbrands are being made only in accordance
with authorizations of management and directors of Hanesbrands;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of Hanesbrands assets that could have a
material effect on the financial statements.
Management has evaluated the effectiveness of Hanesbrands
internal control over financial reporting as of
December 29, 2007 based upon criteria for effective
internal control over financial reporting described in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on our evaluation,
management determined that Hanesbrands internal control
over financial reporting was effective as of December 29,
2007.
The effectiveness of our internal control over financial
reporting as of December 29, 2007 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included in
Part II, Item 8 of this Annual Report on
Form 10-K.
F-2
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Hanesbrands Inc.:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Hanesbrands Inc. at December 29,
2007 and December 30, 2006 and the results of its
operations and its cash flows for the year ended
December 29, 2007, the six months ended December 30,
2006, and each of the two years in the period ended July 1,
2006 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying
index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 29, 2007,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express opinions on these financial statements, on the
financial statement schedule, and on the Companys internal
control over financial reporting based on our audits (which was
an integrated audit in 2007). We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Notes 15 and 16 to the consolidated
financial statements, the Company changed the manner in which it
accounts for its defined benefit pension and other
postretirement plans effective December 30, 2006 and
changed the measurement date for its plan assets and benefit
obligations effective December 29, 2007.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Greensboro, North Carolina
February 8, 2008
F-3
HANESBRANDS
Consolidated
Statements of Income
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
4,474,537
|
|
|
$
|
2,250,473
|
|
|
$
|
4,472,832
|
|
|
$
|
4,683,683
|
|
Cost of sales
|
|
|
3,033,627
|
|
|
|
1,530,119
|
|
|
|
2,987,500
|
|
|
|
3,223,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,440,910
|
|
|
|
720,354
|
|
|
|
1,485,332
|
|
|
|
1,460,112
|
|
Selling, general and administrative expenses
|
|
|
1,040,754
|
|
|
|
547,469
|
|
|
|
1,051,833
|
|
|
|
1,053,654
|
|
Gain on curtailment of postretirement benefits
|
|
|
(32,144
|
)
|
|
|
(28,467
|
)
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
43,731
|
|
|
|
11,278
|
|
|
|
(101
|
)
|
|
|
46,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
388,569
|
|
|
|
190,074
|
|
|
|
433,600
|
|
|
|
359,480
|
|
Other expenses
|
|
|
5,235
|
|
|
|
7,401
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
199,208
|
|
|
|
70,753
|
|
|
|
17,280
|
|
|
|
13,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
184,126
|
|
|
|
111,920
|
|
|
|
416,320
|
|
|
|
345,516
|
|
Income tax expense
|
|
|
57,999
|
|
|
|
37,781
|
|
|
|
93,827
|
|
|
|
127,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
126,127
|
|
|
$
|
74,139
|
|
|
$
|
322,493
|
|
|
$
|
218,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.31
|
|
|
$
|
0.77
|
|
|
$
|
3.35
|
|
|
$
|
2.27
|
|
Diluted
|
|
$
|
1.30
|
|
|
$
|
0.77
|
|
|
$
|
3.35
|
|
|
$
|
2.27
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
95,936
|
|
|
|
96,309
|
|
|
|
96,306
|
|
|
|
96,306
|
|
Diluted
|
|
|
96,741
|
|
|
|
96,620
|
|
|
|
96,306
|
|
|
|
96,306
|
|
See accompanying notes to Consolidated Financial Statements.
F-4
HANESBRANDS
Consolidated
Balance Sheets
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
174,236
|
|
|
$
|
155,973
|
|
Trade accounts receivable less allowances of $31,642 at
December 29, 2007 and $27,709 at December 30, 2006
|
|
|
575,069
|
|
|
|
488,629
|
|
Inventories
|
|
|
1,117,052
|
|
|
|
1,216,501
|
|
Deferred tax assets
|
|
|
172,909
|
|
|
|
136,178
|
|
Other current assets
|
|
|
55,068
|
|
|
|
73,899
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,094,334
|
|
|
|
2,071,180
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
534,286
|
|
|
|
556,866
|
|
Trademarks and other identifiable intangibles, net
|
|
|
151,266
|
|
|
|
137,181
|
|
Goodwill
|
|
|
310,425
|
|
|
|
281,525
|
|
Deferred tax assets
|
|
|
263,157
|
|
|
|
318,927
|
|
Other noncurrent assets
|
|
|
86,015
|
|
|
|
69,941
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,439,483
|
|
|
$
|
3,435,620
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Accounts payable
|
|
$
|
289,166
|
|
|
$
|
221,707
|
|
Bank overdraft.
|
|
|
|
|
|
|
834
|
|
Accrued liabilities and other:
|
|
|
|
|
|
|
|
|
Payroll and employee benefits
|
|
|
115,133
|
|
|
|
121,703
|
|
Advertising and promotion
|
|
|
85,359
|
|
|
|
72,436
|
|
Freight
|
|
|
36,894
|
|
|
|
34,296
|
|
Restructuring
|
|
|
19,636
|
|
|
|
17,029
|
|
Other
|
|
|
123,217
|
|
|
|
119,537
|
|
Notes payable
|
|
|
19,577
|
|
|
|
14,264
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
9,375
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
688,982
|
|
|
|
611,181
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
2,315,250
|
|
|
|
2,484,000
|
|
Pension and postretirement benefits
|
|
|
38,657
|
|
|
|
203,750
|
|
Other noncurrent liabilities
|
|
|
107,690
|
|
|
|
67,418
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,150,579
|
|
|
|
3,366,349
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock (50,000,000 authorized shares; $.01 par
value) Issued and outstanding None
|
|
|
|
|
|
|
|
|
Common stock (500,000,000 authorized shares; $.01 par
value) Issued and outstanding 95,232,478 at
December 29, 2007 and 96,312,458 at December 30, 2006
|
|
|
954
|
|
|
|
963
|
|
Additional paid-in capital
|
|
|
199,019
|
|
|
|
94,852
|
|
Retained earnings
|
|
|
117,849
|
|
|
|
33,024
|
|
Accumulated other comprehensive loss
|
|
|
(28,918
|
)
|
|
|
(59,568
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
288,904
|
|
|
|
69,271
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,439,483
|
|
|
$
|
3,435,620
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Consolidated Financial Statements.
F-5
HANESBRANDS
Consolidated
Statements of Stockholders or Parent Companies
Equity
Year ended December 29, 2007, six months ended
December 30, 2006 and years ended July 1, 2006, and
July 2, 2005
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Companies
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Equity
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Investment
|
|
|
Total
|
|
|
Balances at July 3, 2004
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(32,368
|
)
|
|
$
|
2,829,738
|
|
|
$
|
2,797,370
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,509
|
|
|
|
218,509
|
|
Net transactions with parent companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(427,676
|
)
|
|
|
(427,676
|
)
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,187
|
|
|
|
|
|
|
|
15,187
|
|
Net unrealized loss on qualifying cash flow hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,028
|
)
|
|
|
|
|
|
|
(1,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 2, 2005
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(18,209
|
)
|
|
$
|
2,620,571
|
|
|
$
|
2,602,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322,493
|
|
|
|
322,493
|
|
Net transactions with parent companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,454
|
|
|
|
294,454
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,518
|
|
|
|
|
|
|
|
13,518
|
|
Net unrealized loss on qualifying cash flow hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,693
|
)
|
|
|
|
|
|
|
(3,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 1, 2006
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(8,384
|
)
|
|
$
|
3,237,518
|
|
|
$
|
3,229,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from July 2, 2006 through September 4, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,115
|
|
|
|
41,115
|
|
Net transactions with parent companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(793,133
|
)
|
|
|
(793,133
|
)
|
Payments to Sara Lee Corporation in connection with the spin off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,400,000
|
)
|
|
|
(2,400,000
|
)
|
Consummation of spin off transaction on September 5, 2006,
including distribution of Hanesbrands Inc. common stock by Sara
Lee Corporation
|
|
|
96,306
|
|
|
|
963
|
|
|
|
84,537
|
|
|
|
|
|
|
|
|
|
|
|
(85,500
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
10,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,176
|
|
Exercise of stock options
|
|
|
6
|
|
|
|
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
Net income from September 5, 2006 through December 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,024
|
|
|
|
|
|
|
|
|
|
|
|
33,024
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,989
|
)
|
|
|
|
|
|
|
(5,989
|
)
|
Minimum pension and post-retirement liability, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,677
|
)
|
|
|
|
|
|
|
(63,677
|
)
|
Adoption of SFAS 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,079
|
|
|
|
|
|
|
|
19,079
|
|
Net unrealized loss on qualifying cash flow hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(597
|
)
|
|
|
|
|
|
|
(597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 30, 2006
|
|
|
96,312
|
|
|
$
|
963
|
|
|
$
|
94,852
|
|
|
$
|
33,024
|
|
|
$
|
(59,568
|
)
|
|
$
|
|
|
|
$
|
69,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,127
|
|
|
|
|
|
|
|
|
|
|
|
126,127
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
33,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,170
|
|
Exercise of stock options, vesting of restricted stock units and
other
|
|
|
533
|
|
|
|
7
|
|
|
|
3,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,450
|
|
Stock repurchases
|
|
|
(1,613
|
)
|
|
|
(16
|
)
|
|
|
(2,006
|
)
|
|
|
(42,451
|
)
|
|
|
|
|
|
|
|
|
|
|
(44,473
|
)
|
Final separation of pension plan assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
74,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,189
|
|
Net transactions with Sara Lee Corporation
|
|
|
|
|
|
|
|
|
|
|
(4,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,629
|
)
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,114
|
|
|
|
|
|
|
|
20,114
|
|
Net unrecognized loss from pension and postretirement plans, net
of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,052
|
|
|
|
|
|
|
|
37,052
|
|
Recognition of gain from health-care plan settlement, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,639
|
)
|
|
|
|
|
|
|
(19,639
|
)
|
Adoption of SFAS 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,149
|
|
|
|
|
|
|
|
|
|
|
|
1,149
|
|
Net unrealized loss on qualifying cash flow hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,877
|
)
|
|
|
|
|
|
|
(6,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 29, 2007
|
|
|
95,232
|
|
|
$
|
954
|
|
|
$
|
199,019
|
|
|
$
|
117,849
|
|
|
$
|
(28,918
|
)
|
|
$
|
|
|
|
$
|
288,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Consolidated Financial Statements.
F-6
HANESBRANDS
Consolidated
Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
126,127
|
|
|
$
|
74,139
|
|
|
$
|
322,493
|
|
|
$
|
218,509
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
125,471
|
|
|
|
69,946
|
|
|
|
105,173
|
|
|
|
108,791
|
|
Amortization of intangibles
|
|
|
6,205
|
|
|
|
3,466
|
|
|
|
9,031
|
|
|
|
9,100
|
|
Restructuring
|
|
|
(3,446
|
)
|
|
|
(812
|
)
|
|
|
(4,220
|
)
|
|
|
2,064
|
|
Gain on curtailment of postretirement benefits
|
|
|
(32,144
|
)
|
|
|
(28,467
|
)
|
|
|
|
|
|
|
|
|
Losses on early extinguishment of debt
|
|
|
5,235
|
|
|
|
7,401
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
|
6,475
|
|
|
|
2,279
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
33,625
|
|
|
|
15,623
|
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
|
28,069
|
|
|
|
3,485
|
|
|
|
(46,804
|
)
|
|
|
66,710
|
|
Other
|
|
|
(75
|
)
|
|
|
1,693
|
|
|
|
1,456
|
|
|
|
1,942
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(81,396
|
)
|
|
|
22,004
|
|
|
|
59,403
|
|
|
|
(39,572
|
)
|
Inventories
|
|
|
96,338
|
|
|
|
23,191
|
|
|
|
69,215
|
|
|
|
58,924
|
|
Other assets
|
|
|
19,212
|
|
|
|
(38,726
|
)
|
|
|
21,169
|
|
|
|
45,351
|
|
Due to and from related entities
|
|
|
|
|
|
|
|
|
|
|
(5,048
|
)
|
|
|
19,972
|
|
Accounts payable
|
|
|
67,038
|
|
|
|
17,546
|
|
|
|
(673
|
)
|
|
|
1,076
|
|
Accrued liabilities and other
|
|
|
(37,694
|
)
|
|
|
(36,689
|
)
|
|
|
(20,574
|
)
|
|
|
14,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
359,040
|
|
|
|
136,079
|
|
|
|
510,621
|
|
|
|
506,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(91,626
|
)
|
|
|
(29,764
|
)
|
|
|
(110,079
|
)
|
|
|
(67,135
|
)
|
Acquisitions of businesses, net of cash acquired
|
|
|
(20,243
|
)
|
|
|
(6,666
|
)
|
|
|
(2,436
|
)
|
|
|
(1,700
|
)
|
Acquisition of trademark
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of assets
|
|
|
16,573
|
|
|
|
12,949
|
|
|
|
5,520
|
|
|
|
8,959
|
|
Other
|
|
|
(789
|
)
|
|
|
450
|
|
|
|
(3,666
|
)
|
|
|
(204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(101,085
|
)
|
|
|
(23,031
|
)
|
|
|
(110,661
|
)
|
|
|
(60,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(1,196
|
)
|
|
|
(3,088
|
)
|
|
|
(5,542
|
)
|
|
|
(5,442
|
)
|
Borrowings on notes payable
|
|
|
66,413
|
|
|
|
10,741
|
|
|
|
7,984
|
|
|
|
88,849
|
|
Repayments on notes payable
|
|
|
(88,970
|
)
|
|
|
(3,508
|
)
|
|
|
(93,073
|
)
|
|
|
(5,546
|
)
|
Issuance of debt under credit facilities
|
|
|
|
|
|
|
2,600,000
|
|
|
|
|
|
|
|
|
|
Cost of debt issuance
|
|
|
(3,266
|
)
|
|
|
(50,248
|
)
|
|
|
|
|
|
|
|
|
Payments to Sara Lee Corporation
|
|
|
|
|
|
|
(2,424,606
|
)
|
|
|
|
|
|
|
|
|
Repayment of debt under credit facilities
|
|
|
(428,125
|
)
|
|
|
(106,625
|
)
|
|
|
|
|
|
|
|
|
Issuance of Floating Rate Senior Notes
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Repayment of bridge loan facility
|
|
|
|
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
Borrowings on accounts receivable securitization
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options exercised
|
|
|
6,189
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
Stock repurchases
|
|
|
(44,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefit from stock-based compensation
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in bank overdraft, net
|
|
|
(834
|
)
|
|
|
(274,551
|
)
|
|
|
275,385
|
|
|
|
|
|
Borrowings (repayments) on notes payable to related entities, net
|
|
|
|
|
|
|
|
|
|
|
143,898
|
|
|
|
(113,359
|
)
|
Net transactions with parent companies
|
|
|
|
|
|
|
193,255
|
|
|
|
(1,251,962
|
)
|
|
|
4,499
|
|
Net transactions with related entities
|
|
|
|
|
|
|
(195,381
|
)
|
|
|
(259,026
|
)
|
|
|
(10,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(243,379
|
)
|
|
|
(253,872
|
)
|
|
|
(1,182,336
|
)
|
|
|
(41,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
3,687
|
|
|
|
(1,455
|
)
|
|
|
(171
|
)
|
|
|
1,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
18,263
|
|
|
|
(142,279
|
)
|
|
|
(782,547
|
)
|
|
|
406,645
|
|
Cash and cash equivalents at beginning of period
|
|
|
155,973
|
|
|
|
298,252
|
|
|
|
1,080,799
|
|
|
|
674,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
174,236
|
|
|
$
|
155,973
|
|
|
$
|
298,252
|
|
|
$
|
1,080,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Consolidated Financial Statements.
F-7
HANESBRANDS
Notes to
Consolidated Financial Statements
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
On February 10, 2005, Sara Lee Corporation (Sara
Lee) announced an overall transformation plan which
included spinning off Sara Lees apparel business in the
Americas and Asia (the Branded Apparel Americas and Asia
Business). In connection with the spin off, Sara Lee
incorporated Hanesbrands Inc., a Maryland corporation
(Hanesbrands and, together with its consolidated
subsidiaries, the Company), to which it would
transfer the assets and liabilities related to the Branded
Apparel Americas and Asia Business. On August 31, 2006,
Sara Lee transferred to the Company substantially all the assets
and liabilities, at historical cost, comprising the Branded
Apparel Americas and Asia Business.
On September 5, 2006, as a condition to the distribution to
Sara Lees stockholders of all of the outstanding shares of
the common stock of Hanesbrands, the Company distributed to Sara
Lee a cash dividend payment of $1,950,000 and repaid a loan from
Sara Lee in the amount of $450,000, and Sara Lee distributed to
its stockholders all of the outstanding shares of
Hanesbrands common stock, with each stockholder receiving
one share of Hanesbrands common stock for each eight
shares of Sara Lees common stock that they held as of the
August 18, 2006 record date. As a result of such
distribution, Sara Lee ceased to own any equity interest in the
Company and the Company became an independent, separately
traded, publicly held company.
The Consolidated Financial Statements reflect the consolidated
operations of Hanesbrands Inc. and its subsidiaries as a
separate, stand-alone entity subsequent to September 5,
2006, in addition to the historical operations of the Branded
Apparel Americas and Asia Business which were operated as part
of Sara Lee prior to the spin off. Under Sara Lees
ownership, certain of the Branded Apparel Americas and Asia
Businesss operations were divisions of Sara Lee and not
separate legal entities, while the Branded Apparel Americas and
Asia Businesss foreign operations were subsidiaries of
Sara Lee. A direct ownership relationship did not exist among
the various units comprising the Branded Apparel Americas and
Asia Business prior to the spin off on September 5, 2006.
Subsequent to the spin off on September 5, 2006, the
Company began accumulating its retained earnings and recognized
the par value and
paid-in-capital
in connection with the issuance of approximately
96,306 shares of common stock.
Prior to the spin off on September 5, 2006, the Branded
Apparel Americas and Asia Business utilized the services of Sara
Lee for certain functions. These services included providing
working capital, as well as certain legal, finance, internal
audit, financial reporting, tax advisory, insurance, global
information technology, environmental matters and human resource
services, including various corporate-wide employee benefit
programs. The cost of these services has been allocated to the
Company and included in the Consolidated Financial Statements
for periods prior to the spin off on September 5, 2006. The
allocations were determined on the basis which Sara Lee and the
Branded Apparel Americas and Asia Business considered to be
reasonable reflections of the utilization of services provided
by Sara Lee. A more detailed discussion of the relationship with
Sara Lee prior to the spin off on September 5, 2006,
including a description of the costs which have been allocated
to the Branded Apparel Americas and Asia Business, as well as
the method of allocation, is included in Note 19 to the
Consolidated Financial Statements.
Management believes the assumptions underlying the Consolidated
Financial Statements for these periods are reasonable. However,
the Consolidated Financial Statements included herein for the
periods through September 5, 2006 do not necessarily
reflect the Branded Apparel Americas and Asia Businesss
operations and cash flows in the future or what its results of
operations and cash flows would have been had the Branded
Apparel Americas and Asia Business been a stand-alone company
during the periods presented.
In October 2006, the Companys Board of Directors approved
a change in the Companys fiscal year end from the Saturday
closest to June 30 to the Saturday closest to December 31.
As a result of this change, the
F-8
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Consolidated Financial Statements include presentation of the
transition period beginning on July 2, 2006 and ending on
December 30, 2006. Fiscal years 2007, 2006 and 2005
included 52 weeks. Unless otherwise stated, references to
years relate to fiscal years.
The following table presents certain financial information for
the six months ended December 30, 2006 and
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 30, 2006
|
|
|
December 31, 2005
|
|
|
|
|
|
|
(unaudited)
|
|
|
Net sales
|
|
$
|
2,250,473
|
|
|
$
|
2,319,839
|
|
Cost of sales
|
|
|
1,530,119
|
|
|
|
1,556,860
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
720,354
|
|
|
|
762,979
|
|
Selling, general and administrative expenses
|
|
|
547,469
|
|
|
|
505,866
|
|
Gain on curtailment of postretirement benefits
|
|
|
(28,467
|
)
|
|
|
|
|
Restructuring
|
|
|
11,278
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
190,074
|
|
|
|
257,452
|
|
Other expenses
|
|
|
7,401
|
|
|
|
|
|
Interest expense, net
|
|
|
70,753
|
|
|
|
8,412
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
111,920
|
|
|
|
249,040
|
|
Income tax expense
|
|
|
37,781
|
|
|
|
60,424
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
74,139
|
|
|
$
|
188,616
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.77
|
|
|
$
|
1.96
|
|
Diluted
|
|
$
|
0.77
|
|
|
$
|
1.96
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
96,309
|
|
|
|
96,306
|
|
Diluted
|
|
|
96,620
|
|
|
|
96,306
|
|
|
|
(2)
|
Summary
of Significant Accounting Policies
|
The Consolidated Financial Statements include the accounts of
the Company, its controlled subsidiary companies which in
general are majority owned entities, and the accounts of
variable interest entities (VIEs) for which the Company is
deemed the primary beneficiary, as defined by the Financial
Accounting Standards Boards (FASB) Interpretation
No. 46, Consolidation of Variable Interest Entities
(FIN 46) and related interpretations. Excluded
from the accounts of the Company are Sara Lee entities which
maintained legal ownership of certain of the Companys
divisions (Parent Companies) until the spin off on
September 5, 2006. The results of companies acquired or
disposed of during the year are included in the Consolidated
Financial Statements from the effective date of acquisition, or
up to the date of disposal. All intercompany balances and
transactions have been eliminated in consolidation.
In January 2003, the FASB issued FIN 46, which addresses
consolidation by business enterprises of VIEs that either:
(1) do not have sufficient equity investment at risk to
permit the entity to finance its activities
F-9
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
without additional subordinated financial support, or
(2) have equity investors that lack an essential
characteristic of a controlling financial interest. Throughout
calendar 2003, the FASB released numerous proposed and final
FASB Staff Positions (FSPs) regarding FIN 46, which both
clarified and modified FIN 46s provisions. In
December 2003, the FASB issued Interpretation No. 46
(FIN 46-R),
which replaced FIN 46.
FIN 46-R
retains many of the basic concepts introduced in FIN 46;
however, it also introduced a new scope exception for certain
types of entities that qualify as a business as
defined in
FIN 46-R,
revised the method of calculating expected losses and residual
returns for determination of the primary beneficiary, included
new guidance for assessing variable interests, and codified
certain FSPs on FIN 46. The Company adopted the provisions
of
FIN 46-R
in 2004.
The Company consolidates one VIE, an Israeli manufacturer and
supplier of yarn. The Company has a 49% ownership interest in
the Israeli joint venture, however, based upon certain terms of
the supply contract, the Company has a disproportionate share of
expected losses and residual returns. The Company continues to
consolidate this VIE through the year ended December 29,
2007. The effect of consolidating this VIE was the inclusion of
$11,903 of total assets and $8,351 of total liabilities at
December 29, 2007 and $10,632 of total assets and $8,290 of
total liabilities at December 30, 2006 on the Consolidated
Balance Sheets.
The Company reported a minority interest of $5,749 and $5,574 in
the Other noncurrent liabilities line of the
Consolidated Balance Sheets at December 29, 2007 and
December 30, 2006, respectively.
The preparation of Consolidated Financial Statements in
conformity with U.S. generally accepted accounting
principles requires management to make use of estimates and
assumptions that affect the reported amount of assets and
liabilities, certain financial statement disclosures at the date
of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual
results may vary from these estimates.
|
|
(c)
|
Foreign
Currency Translation
|
Foreign currency-denominated assets and liabilities are
translated into U.S. dollars at exchange rates existing at
the respective balance sheet dates. Translation adjustments
resulting from fluctuations in exchange rates are recorded as a
separate component of accumulated other comprehensive loss
within stockholders equity. The Company translates the
results of operations of its foreign operations at the average
exchange rates during the respective periods. Gains and losses
resulting from foreign currency transactions, the amounts of
which are not material for any of the periods presented, are
included in the Selling, general and administrative
expenses line of the Consolidated Statements of Income.
|
|
(d)
|
Sales
Recognition and Incentives
|
The Company recognizes revenue when (i) there is persuasive
evidence of an arrangement, (ii) the sales price is fixed
or determinable, (iii) title and the risks of ownership
have been transferred to the customer and (iv) collection
of the receivable is reasonably assured, which occurs primarily
upon shipment. The Company records a sales reduction for returns
and allowances based upon historical return experience. The
Company earns royalty revenues through license agreements with
manufacturers of other consumer products that incorporate
certain of the Companys brands. The Company accrues
revenue earned under these contracts based upon reported sales
from the licensee. The Company offers a variety of sales
incentives to resellers and
F-10
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
consumers of its products, and the policies regarding the
recognition and display of these incentives within the
Consolidated Statements of Income are as follows:
Discounts,
Coupons, and Rebates
The Company recognizes the cost of these incentives at the later
of the date at which the related sale is recognized or the date
at which the incentive is offered. The cost of these incentives
is estimated using a number of factors, including historical
utilization and redemption rates. All cash incentives of this
type are included in the determination of net sales. The Company
includes incentives offered in the form of free products in the
determination of cost of sales.
Volume-Based
Incentives
These incentives typically involve rebates or refunds of cash
that are redeemable only if the reseller completes a specified
number of sales transactions. Under these incentive programs,
the Company estimates the anticipated rebate to be paid and
allocates a portion of the estimated cost of the rebate to each
underlying sales transaction with the customer. The Company
includes these amounts in the determination of net sales.
Cooperative
Advertising
Under these arrangements, the Company agrees to reimburse the
reseller for a portion of the costs incurred by the reseller to
advertise and promote certain of the Companys products.
The Company recognizes the cost of cooperative advertising
programs in the period in which the advertising and promotional
activity first takes place. For the year ended December 29,
2007, the Company changed the manner in which it accounted for
cooperative advertising that resulted in a change in the
classification from media, advertising and promotion expenses to
a reduction in sales. This change in classification was made in
accordance with
EITF 01-9,
Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products),
because the estimated fair value of the identifiable benefit
was no longer obtained beginning in 2007.
Fixtures
and Racks
Store fixtures and racks are periodically provided to resellers
to display Company products. The Company expenses the cost of
these fixtures and racks in the period in which they are
delivered to the resellers. The Company includes the costs of
these amounts in the determination of net sales.
Advertising costs, which include the development and production
of advertising materials and the communication of these
materials through various forms of media, are expensed in the
period the advertising first takes place. The Company recognized
advertising expense in the Selling, general and
administrative expenses caption in the Consolidated
Statements of Income of $188,327 in the year ended
December 29, 2007, $99,786 in the six months ended
December 30, 2006, $190,934 in the year ended July 1,
2006 and $179,980 in the year ended July 2, 2005.
|
|
(f)
|
Shipping
and Handling Costs
|
Revenue received for shipping and handling costs is included in
net sales and was $22,751 in the year ended December 29,
2007, $11,711 in the six months ended December 30, 2006,
$20,405 in the year ended
F-11
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
July 1, 2006 and $14,504 in the year ended July 2,
2005. Shipping costs, that comprise payments to third party
shippers, and handling costs, which consist of warehousing costs
in the Companys various distribution facilities, were
$234,070 in the year ended December 29, 2007, $123,850 in
the six months ended December 30, 2006, $235,690 in the
year ended July 1, 2006 and $246,770 in the year ended
July 2, 2005. The Company recognizes shipping, handling and
distribution costs in the Selling, general and
administrative expenses line of the Consolidated
Statements of Income.
The Company incurs expenses for printing catalogs for products
to aid in the Companys sales efforts. The Company
initially records these expenses as a prepaid item and charges
it against selling, general and administrative expenses over
time as the catalog is used. Expenses are recognized at a rate
that approximates historical experience with regard to the
timing and amount of sales attributable to a catalog
distribution.
|
|
(h)
|
Research
and Development
|
Research and development costs are expensed as incurred and are
included in the Selling, general and administrative
expenses line of the Consolidated Statements of Income.
Research and development expense was $45,409 in the year ended
December 29, 2007, $23,460 in the six months ended
December 30, 2006, $54,571 in the year ended July 1,
2006 and $51,364 in the year ended July 2, 2005.
|
|
(i)
|
Cash
and Cash Equivalents
|
All highly liquid investments with a maturity of three months or
less at the time of purchase are considered to be cash
equivalents. Prior to the spin off from Sara Lee on
September 5, 2006, a significant portion of our cash and
cash equivalents were in the Companys bank accounts that
were part of Sara Lees global cash funding system. With
respect to accounts in the Sara Lee global cash funding system,
the bank had a right to offset the accounts of the Company
against the other Sara Lee accounts.
|
|
(j)
|
Accounts
Receivable Valuation
|
Accounts receivable are stated at their net realizable value.
The allowance for doubtful accounts reflects the Companys
best estimate of probable losses inherent in the receivables
portfolio determined on the basis of historical experience,
specific allowances for known troubled accounts and other
currently available information.
Inventories are stated at the lower of cost or market. Rebates,
discounts and other cash consideration received from a vendor
related to inventory purchases are reflected as reductions in
the cost of the related inventory item, and are therefore
reflected in cost of sales when the related inventory item is
sold. During the six months ended December 30, 2006, the
Company elected to convert all inventory valued by the
last-in,
first-out, or LIFO, method to the
first-in,
first-out, or FIFO, method. In accordance with the
Statement of Financial Accounting Standards (SFAS) No. 154,
Accounting Changes and Error Corrections (SFAS 154),
a change from the LIFO to FIFO method of inventory valuation
constitutes a change in accounting principle. Historically,
inventory valued under the LIFO method, which was 4% of total
inventories, would have the same value if measured under the
FIFO method. Therefore, the conversion has no retrospective
reporting impact.
F-12
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Property is stated at historical cost and depreciation expense
is computed using the straight-line method over the estimated
useful lives of the assets. Machinery and equipment is
depreciated over periods ranging from three to 25 years and
buildings and building improvements over periods of up to
40 years. A change in the depreciable life is treated as a
change in accounting estimate and the accelerated depreciation
is accounted for in the period of change and future periods.
Additions and improvements that substantially extend the useful
life of a particular asset and interest costs incurred during
the construction period of major properties are capitalized.
Repairs and maintenance costs are expensed as incurred. Upon
sale or disposition of an asset, the cost and related
accumulated depreciation are removed from the accounts.
Property is tested for recoverability whenever events or changes
in circumstances indicate that its carrying value may not be
recoverable. Such events include significant adverse changes in
the business climate, several periods of operating or cash flow
losses, forecasted continuing losses or a current expectation
that an asset or an asset group will be disposed of before the
end of its useful life. Recoverability of property is evaluated
by a comparison of the carrying amount of an asset or asset
group to future net undiscounted cash flows expected to be
generated by the asset or asset group. If these comparisons
indicate that an asset is not recoverable, the impairment loss
recognized is the amount by which the carrying amount of the
asset exceeds the estimated fair value. When an impairment loss
is recognized for assets to be held and used, the adjusted
carrying amount of those assets is depreciated over its
remaining useful life. Restoration of a previously recognized
impairment loss is not permitted under U.S. generally
accepted accounting principles.
|
|
(m)
|
Trademarks
and Other Identifiable Intangible Assets
|
The primary identifiable intangible assets of the Company are
trademarks and computer software. Identifiable intangibles with
finite lives are amortized and those with indefinite lives are
not amortized. The estimated useful life of a finite-lived
intangible asset is based upon a number of factors, including
the effects of demand, competition, expected changes in
distribution channels and the level of maintenance expenditures
required to obtain future cash flows. Finite-lived trademarks
are being amortized over periods ranging from five to
30 years, while computer software is being amortized over
periods ranging from two to ten years.
The Company capitalizes internal software development costs
under the provisions of AICPA Statement of Position
98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Capitalized computer software
costs include the actual costs to purchase software from vendors
and generally include personnel and related costs for employees
who were directly associated with the enhancement and
implementation of purchased computer software. Additions to
computer software are included in purchases of property and
equipment in the Consolidated Statements of Cash Flows.
Identifiable intangible assets that are subject to amortization
are evaluated for impairment using a process similar to that
used in evaluating elements of property. Identifiable intangible
assets not subject to amortization are assessed for impairment
at least annually and as triggering events occur. The impairment
test for identifiable intangible assets not subject to
amortization consists of comparing the fair value of the
intangible asset to its carrying amount. An impairment loss is
recognized for the amount by which the carrying value exceeds
the fair value of the asset. In assessing fair value, management
relies on a number of factors to discount anticipated future
cash flows including operating results, business plans and
present value techniques. Rates used to discount cash flows are
dependent upon interest rates and the cost of capital at a point
in time. There are inherent uncertainties related to these
factors and managements judgment in applying them to the
analysis of intangible asset impairment.
F-13
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Goodwill is the amount by which the purchase price exceeds the
fair value of the assets acquired and liabilities assumed in a
business combination. When a business combination is completed,
the assets acquired and liabilities assumed are assigned to the
reporting unit or units of the Company given responsibility for
managing, controlling and generating returns on these assets and
liabilities. The Company has determined that the reporting units
are at the operating segment level. In many instances, all of
the acquired assets and assumed liabilities are assigned to a
single reporting unit and in these cases all of the goodwill is
assigned to the same reporting unit. In those situations in
which the acquired assets and liabilities are allocated to more
than one reporting unit, the goodwill to be assigned to each
reporting unit is determined in a manner similar to how the
amount of goodwill recognized in a business combination is
determined.
Goodwill is not amortized; however, it is assessed for
impairment at least annually and as triggering events occur. The
first step involves comparing the fair value of a reporting unit
to its carrying value. If the carrying value of the reporting
unit exceeds its fair value, the second step of the process
involves comparing the implied fair value to the carrying value
of the goodwill of that reporting unit. If the carrying value of
the goodwill of a reporting unit exceeds the implied fair value
of that goodwill, an impairment loss is recognized in an amount
equal to such excess.
In evaluating the recoverability of goodwill, it is necessary to
estimate the fair values of the reporting units. In making this
assessment, management relies on a number of factors to discount
anticipated future cash flows including operating results,
business plans and present value techniques. Rates used to
discount cash flows are dependent upon interest rates and the
cost of capital at a point in time. There are inherent
uncertainties related to these factors and managements
judgment in applying them to the analysis of goodwill impairment.
During the third quarter of the year ended December 29,
2007, the Company changed the timing of its annual goodwill
impairment testing to the first day of the third fiscal quarter.
Prior to the year ended December 29, 2007, the
Companys policy was to perform the test at the end of the
second fiscal quarter which coincided with Sara Lees
policy before the spin off. The change in the annual goodwill
impairment testing date was made following the change in the
Companys fiscal year-end from the Saturday closest to June
30 to the Saturday closest to December 31 and results in the
testing continuing to be performed in the middle of the
Companys fiscal year. In addition, this change in
accounting principle better aligns the annual goodwill
impairment test with the timing of the Companys annual
long range planning cycle. The change in accounting principle
does not delay, accelerate or avoid an impairment charge.
Accordingly, the Company believes that the change in accounting
principle described above is preferable under the circumstances.
|
|
(o)
|
Stock-Based
Compensation
|
The employees of the Company participated in the stock-based
compensation plans of Sara Lee prior to the Companys spin
off on September 5, 2006. In connection with the spin off,
the Company established the Hanesbrands Inc. Omnibus Incentive
Plan of 2006, (the Hanesbrands OIP) to award stock
options, stock appreciation rights, restricted stock, restricted
stock units, deferred stock units, performance shares and cash
to its employees, non-employee directors and employees of its
subsidiaries to promote the interests of the Company and incent
performance and retention of employees.
On July 3, 2005, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment (SFAS No. 123(R))
using the modified prospective method. SFAS No. 123(R)
requires companies to recognize the cost of employee services
received in exchange for
F-14
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
awards of equity instruments based upon the grant date fair
value of those awards. Under the modified prospective method of
adopting SFAS No. 123(R), the Company recognized
compensation cost for all share-based payments granted after
July 3, 2005, plus any awards granted to employees prior to
July 3, 2005 that remained unvested at that time. Under
this method of adoption, no restatement of prior periods is
required. The cumulative effect of adopting
SFAS No. 123(R) was immaterial in the year ended
July 1, 2006.
Prior to July 3, 2005, the Company recognized the cost of
employee services received in exchange for Sara Lee equity-based
instruments in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25). APB No. 25 required the
use of the intrinsic value method, which measures compensation
cost as the excess, if any, of the quoted market price of the
stock over the amount the employee must pay for the stock.
Compensation expense for substantially all equity-based awards
was measured under APB No. 25 on the date the awards were
granted. Under APB No. 25, no compensation expense has been
recognized for stock options, replacement stock options and
shares purchased by our employees under the Sara Lee Employee
Stock Purchase Plan (Sara Lee ESPP) during the years prior to
the year ended July 1, 2006. Compensation expense was
recognized under APB No. 25 for the cost of Sara Lee RSUs
granted to employees during the years prior to 2006.
During 2005, had the cost of employee services received in
exchange for equity instruments been recognized based on the
grant-date fair value of those instruments in accordance with
the provisions of Statement of Financial Accounting Standards
No. 123, Accounting for Stock-based Compensation
(SFAS 123), the Companys net income would have
been impacted as shown in the following table:
|
|
|
|
|
|
|
Year Ended July 2,
|
|
|
|
2005
|
|
|
Reported net income
|
|
$
|
218,509
|
|
Plus stock-based employee compensation included in
reported net income, net of related tax effects
|
|
|
6,606
|
|
Less total stock-based employee compensation expense
determined under the fair-value method for all awards, net of
related tax effects
|
|
|
(10,854
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
214,261
|
|
|
|
|
|
|
For the periods prior to the spin off on September 5, 2006,
income taxes were prepared on a separate return basis as if the
Company had been a group of separate legal entities. As a
result, actual tax transactions that would not have occurred had
the Company been a separate entity have been eliminated in the
preparation of Consolidated Financial Statements for such
periods. Until the Company entered into a tax sharing agreement
with Sara Lee in connection with the spin off, there was no
formal tax sharing agreement between the Company and Sara Lee.
The tax sharing agreement allocates responsibilities between the
Company and Sara Lee for taxes and certain other tax matters.
Under the tax sharing agreement, Sara Lee generally is liable
for all U.S. federal, state, local and foreign income taxes
attributable to the Company with respect to taxable periods
ending on or before September 5, 2006. Sara Lee also is
liable for income taxes attributable to the Company with respect
to taxable periods beginning before September 5, 2006 and
ending after September 5, 2006, but only to the extent
those taxes are allocable to the portion of the taxable period
ending on September 5, 2006. The Company is generally
liable for all other taxes attributable to it. Changes in the
amounts payable or receivable by the Company under the
stipulations of this agreement may impact the Companys
financial position and cash flows in any period.
F-15
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Within 180 days after Sara Lee files its final consolidated
tax return for the period that includes September 5, 2006,
Sara Lee is required to deliver to the Company a computation of
the amount of deferred taxes attributable to the Companys
United States and Canadian operations that would be included on
the Companys balance sheet as of September 6, 2006.
If substituting the amount of deferred taxes as finally
determined for the amount of estimated deferred taxes that were
included on that balance sheet at the time of the spin off
causes a decrease in the net book value reflected on that
balance sheet, then Sara Lee will be required to pay the Company
the amount of such decrease. If such substitution causes an
increase in the net book value reflected on that balance sheet,
then the Company will be required to pay Sara Lee the amount of
such increase. For purposes of this computation, the
Companys deferred taxes are the amount of deferred tax
benefits (including deferred tax consequences attributable to
deductible temporary differences and carryforwards) that would
be recognized as assets on the Companys balance sheet
computed in accordance with GAAP, but without regard to
valuation allowances, less the amount of deferred tax
liabilities (including deferred tax consequences attributable to
deductible temporary differences) that would be recognized as
liabilities on the Companys balance sheet computed in
accordance with GAAP, but without regard to valuation
allowances. Neither the Company nor Sara Lee will be required to
make any other payments to the other with respect to deferred
taxes.
Deferred taxes are recognized for the future tax effects of
temporary differences between financial and income tax reporting
using tax rates in effect for the years in which the differences
are expected to reverse. Given continuing losses in certain
jurisdictions in which the Company operates on a separate return
basis, a valuation allowance has been established for the
deferred tax assets in these specific locations. Net operating
loss carryforwards, charitable contribution carryforwards and
capital loss carryforwards have been determined in these
Consolidated Financial Statements as if the Company had been a
group of legal entities separate from Sara Lee, which results in
different carryforward amounts than those shown by Sara Lee. The
Company periodically estimates the probable tax obligations
using historical experience in tax jurisdictions and informed
judgment. There are inherent uncertainties related to the
interpretation of tax regulations in the jurisdictions in which
the Company transacts business. The judgments and estimates made
at a point in time may change based on the outcome of tax
audits, as well as changes to, or further interpretations of,
regulations. Income tax expense is adjusted in the period in
which these events occur, and these adjustments are included in
the Companys Consolidated Statements of Income. If such
changes take place, there is a risk that the Companys
effective tax rate may increase or decrease in any period. In
July 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation 48, Accounting for
Uncertainty in Income Taxes (FIN 48), which
became effective during the year ended December 29, 2007.
FIN 48 addresses the determination of how tax benefits
claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN 48, a
company must recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax
position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The
tax benefits recognized in the financial statements from such a
position are measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon
ultimate resolution. The impact of the reassessment of the
Companys tax positions in accordance with FIN 48 did
not have a material impact on its results of operations,
financial condition or liquidity.
|
|
(q)
|
Financial
Instruments
|
The Company uses financial instruments, including forward
exchange, option and swap contracts, to manage its exposures to
movements in interest rates, foreign exchange rates and
commodity prices. The use of these financial instruments
modifies the exposure of these risks with the intent to reduce
the risk or cost to the
F-16
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Company. The Company does not use derivatives for trading
purposes and is not a party to leveraged derivative contracts.
The Company formally documents its hedge relationships,
including identifying the hedging instruments and the hedged
items, as well as its risk management objectives and strategies
for undertaking the hedge transaction. This process includes
linking derivatives that are designated as hedges of specific
assets, liabilities, firm commitments or forecasted
transactions. The Company also formally assesses, both at
inception and at least quarterly thereafter, whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in either the fair value or cash
flows of the hedged item. If it is determined that a derivative
ceases to be a highly effective hedge, or if the anticipated
transaction is no longer likely to occur, the Company
discontinues hedge accounting, and any deferred gains or losses
are recorded in the Selling, general and administrative
expenses line of the Consolidated Financial Statements.
Derivatives are recorded in the Consolidated Balance Sheets at
fair value in other assets and other liabilities. The fair value
is based upon either market quotes for actively traded
instruments or independent bids for nonexchange traded
instruments.
On the date the derivative is entered into, the Company
designates the type of derivative as a fair value hedge, cash
flow hedge, net investment hedge or a mark to market hedge, and
accounts for the derivative in accordance with its designation.
Mark to
Market Hedge
A derivative used as a hedging instrument whose change in fair
value is recognized to act as an economic hedge against changes
in the values of the hedged item is designated a mark to market
hedge. For derivatives designated as mark to market hedges,
changes in fair value are reported in earnings in the
Selling, general and administrative expenses line of
the Consolidated Statements of Income. Forward exchange
contracts are recorded as mark to market hedges when the hedged
item is a recorded asset or liability that is revalued in each
accounting period, in accordance with SFAS No. 52,
Foreign Currency Translation.
Cash Flow
Hedge
A hedge of a forecasted transaction or of the variability of
cash flows to be received or paid related to a recognized asset
or liability is designated as a cash flow hedge. The effective
portion of the change in the fair value of a derivative that is
designated as a cash flow hedge is recorded in the
Accumulated other comprehensive loss line of the
Consolidated Balance Sheets. When the hedged item affects the
income statement, the gain or loss included in accumulated other
comprehensive income (loss) is reported on the same line in the
Consolidated Statements of Income as the hedged item. In
addition, both the fair value of changes excluded from the
Companys effectiveness assessments and the ineffective
portion of the changes in the fair value of derivatives used as
cash flow hedges are reported in the Selling, general and
administrative expenses line in the Consolidated
Statements of Income.
|
|
(r)
|
Business
Acquisitions
|
In December 2007, the Company acquired a 900-employee sheer
hosiery manufacturing operation in Las Lourdes, El Salvador
for $3,338 in cash and $629 in assumed liabilities, resulting in
$1,517 of goodwill.
In August 2007, the Company acquired the 1,300-employee textile
manufacturing operations in San Juan Opico, El Salvador of
Industrias Duraflex, S.A. de C.V., which had been a supplier to
the Company since the early 1990s, resulting in $27,293 of
goodwill.
F-17
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
In November 2006, the Company acquired an Asian sewing
production facility for $6,666 in cash and the assumption of
$3,560 of debt. Goodwill of $2,766 was recognized as a result of
the purchase price exceeding the fair value of the assets and
liabilities acquired.
In September 2005, the Company acquired a domestic yarn and
textile production company for $2,436 in cash and the assumption
of $84,000 of debt. The fair value of the assets acquired, net
of liabilities assumed, approximated the purchase price and no
goodwill was recognized as a result of the transaction. In the
year ended July 2, 2005, purchases from the acquired
business accounted for approximately 18% of the Companys
total cost of sales. Following the acquisition, substantially
all of the yarn and textiles produced by the acquired business
have been used in products produced by the Company, and those
that were not have been sold to third parties.
None of the preceding business acquisitions were determined by
the Company to be material, individually or in the aggregate, as
set forth in SFAS No. 141, Accounting for Business
Combinations (SFAS 141). As a result, the disclosures
and supplemental pro forma information required by SFAS 141
are not presented.
|
|
(s)
|
Recently
Issued Accounting Standards
|
Fair
Value Measurements
The FASB has issued SFAS No. 157, Fair Value
Measurements, or SFAS 157, which provides
guidance for using fair value to measure assets and liabilities.
The standard also responds to investors requests for more
information about (1) the extent to which companies measure
assets and liabilities at fair value, (2) the information
used to measure fair value, and (3) the effect that
fair-value measurements have on earnings. SFAS 157 will
apply whenever another standard requires (or permits) assets or
liabilities to be measured at fair value. The standard does not
expand the use of fair value to any new circumstances.
SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Company is currently
evaluating the impact, if any, of SFAS 157 on its results
of operations and financial position.
Fair
Value Option for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159 permits
companies to choose to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value and establishes
presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. The
provisions of SFAS 159 become effective for fiscal years
beginning after November 15, 2007. The Company is currently
evaluating the impact, if any, that SFAS 159 will have on
its results of operations and financial position.
Business
Combinations
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141R). The objective of SFAS 141 is
to improve the relevance, representational faithfulness, and
comparability of the information that a company provides in its
financial reports about a business combination and its effects.
Under SFAS 141R, a company is required to recognize the
assets acquired, liabilities assumed, contractual contingencies,
contingent consideration measured at their fair value at the
acquisition date. It further required that research and
development assets acquired in a business combination that have
no
F-18
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
alternative future use to be measured at their acquisition-date
fair value and then immediately charged to expense, and that
acquisition-related costs are to be recognized separately from
the acquisition and expensed as incurred. Among other changes,
this statement also required that negative goodwill
be recognized in earnings as a gain attributable to the
acquisition, and any deferred tax benefits resulting from a
business combination are recognized in income from continuing
operations in the period of the combination. SFAS 141R is
effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). The objective of this Statement is
to improve the relevance, comparability, and transparency of the
financial information that a company provides in its
consolidated financial statements. SFAS 160 requires a
company to clearly identify and present ownership interests in
subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but
separate from the companys equity. It also requires the
amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income;
changes in ownership interest be accounted for similarly, as
equity transactions; and when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former
subsidiary and the gain or loss on the deconsolidation of the
subsidiary be measured at fair value. SFAS 160 is effective
for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. The Company is
currently evaluating the impact that SFAS 160 will have on
its results of operations and financial position.
Basic earnings per share (EPS) was computed by
dividing net income by the number of weighted average shares of
common stock outstanding during the year ended December 29,
2007 and the six months ended December 30, 2006. Diluted
EPS was calculated to give effect to all potentially dilutive
shares of common stock. The reconciliation of basic to diluted
weighted average shares for the year ended December 29,
2007 and the year ended December 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Basic weighted average shares
|
|
|
95,936
|
|
|
|
96,309
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
278
|
|
|
|
31
|
|
Restricted stock units
|
|
|
527
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
96,741
|
|
|
|
96,620
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 1,163 and 1,832 shares of common stock
were excluded from the diluted earnings per share calculation
because their effect would be anti-dilutive for the year ended
December 29, 2007 and the six months ended
December 30, 2006, respectively.
For the years ended July 1, 2006 and July 2, 2005,
basic and diluted EPS were computed using the number of shares
of Hanesbrands stock outstanding on September 5, 2006, the
date on which Hanesbrands common stock was distributed to
stockholders of Sara Lee in connection with the spin off.
F-19
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
(4)
|
Stock-Based
Compensation
|
The Company established the Hanesbrands OIP to award stock
options, stock appreciation rights, restricted stock, restricted
stock units, deferred stock units, performance shares and cash
to its employees, non-employee directors and employees of its
subsidiaries to promote the interests of the Company and incent
performance and retention of employees.
Stock
Options
The exercise price of each stock option equals the closing
market price of Hanesbrands stock on the date of grant.
Options can generally be exercised over a term of between five
and seven years. Options vest ratably over two to three years
with the exception of one category of award made in September
2006 which vested immediately upon grant. The fair value of each
option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following table
illustrates the assumptions for the Black-Scholes option-pricing
model used in determining the fair value of options granted
during the year ended December 29, 2007 and the six months
ended December 30, 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
3.24-4.92
|
%
|
|
|
4.52-4.59
|
%
|
Volatility
|
|
|
26-28
|
%
|
|
|
30
|
%
|
Expected term (years)
|
|
|
2.5-4.5
|
|
|
|
2.5-4.5
|
|
The dividend yield assumption is based on the Companys
current intent not to pay dividends. The Company uses the
volatility of peer companies for a period of time that is
comparable to the expected life of the option to determine
volatility assumptions. The Company utilized the simplified
method outlined in SEC Staff Accounting
Bulletin No. 107 to estimate expected lives for
options granted. SEC Staff Accounting
Bulletin No. 110, which was issued in December 2007,
amends SEC Staff Accounting Bulletin No. 107 and gives
a limited extension on using the simplified method for valuing
stock option grants to eligible public companies that do not
have sufficient historical exercise patterns on options granted
to employees.
F-20
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
A summary of the changes in stock options outstanding to the
Companys employees under the Hanesbrands OIP is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
Contractual
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Term
|
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
|
(Years)
|
|
|
Options outstanding at July 1, 2006
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
|
2,955
|
|
|
|
22.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6
|
)
|
|
|
22.37
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 30, 2006
|
|
|
2,949
|
|
|
$
|
22.37
|
|
|
$
|
3,686
|
|
|
|
5.99
|
|
Granted
|
|
|
1,222
|
|
|
|
25.59
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(277
|
)
|
|
|
22.37
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(249
|
)
|
|
|
22.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 29, 2007
|
|
|
3,645
|
|
|
$
|
23.41
|
|
|
$
|
16,369
|
|
|
|
5.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 29, 2007
|
|
|
1,439
|
|
|
$
|
22.39
|
|
|
$
|
7,839
|
|
|
|
4.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 634 and 1,123 options that vested during the year
ended December 29, 2007 and six months ended
December 30, 2006, respectively. The total intrinsic value
of options that were exercised during the year ended
December 29, 2007 and the six months ended
December 30, 2006 was $1,804 and $8, respectively. The
weighted average fair value of individual options granted during
the year ended December 29, 2007 and the six months ended
December 30, 2006 was $7.83 and $6.55, respectively.
Cash received from option exercises under all share-based
payment arrangements for the year ended December 29, 2007
and the six months ended December 30, 2006 was $6,189 and
$139, respectively. The actual tax benefit realized for the tax
deductions from option exercise of the share-based payment
arrangements totaled $1,503 and $8 for the year ended
December 29, 2007 and the six months ended
December 20, 2006, respectively.
Stock
Unit Awards
Restricted stock units (RSUs) of Hanesbrands stock are
granted to certain Company employees and non-employee directors
to incent performance and retention over periods ranging from
one to three years. Upon vesting, the RSUs are converted into
shares of the Companys common stock on a one-for-one basis
and issued to the grantees. All RSUs which have been granted
under the Hanesbrands OIP vest solely upon continued future
service to the Company. The cost of these awards is determined
using the fair value of the shares on the date of grant, and
compensation expense is recognized over the period during which
the grantees
F-21
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
provide the requisite service to the Company. A summary of the
changes in the restricted stock unit awards outstanding under
the Hanesbrands OIP is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
Remaining
|
|
|
|
|
|
|
Grant-Date
|
|
|
Intrinsic
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Value
|
|
|
Term (Years)
|
|
|
Nonvested share units at July 1, 2006
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
|
1,546
|
|
|
|
22.37
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested share units at December 30, 2006
|
|
|
1,546
|
|
|
$
|
22.37
|
|
|
$
|
36,516
|
|
|
|
2.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
615
|
|
|
|
25.38
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(440
|
)
|
|
|
22.37
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(143
|
)
|
|
|
23.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested share units at December 29, 2007
|
|
|
1,578
|
|
|
$
|
23.47
|
|
|
$
|
6,954
|
|
|
|
5.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested share units at December 29, 2007
|
|
|
440
|
|
|
$
|
22.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of shares vested during the year ended
December 29, 2007 was $8,423. Certain participants elected
to defer receipt of shares earned upon vesting. A total of
64 shares of common stock are issuable in future years for
such deferrals.
For all share-based payments under the Hanesbrands OIP, during
the year ended December 29, 2007 and the six months ended
December 30, 2006, the Company recognized total
compensation expense of $33,185 and $10,176 and recognized a
deferred tax benefit of $12,360 and $3,842, respectively. At
December 29, 2007, there was $23,904 of total unrecognized
compensation cost related to non-vested stock-based compensation
arrangements, of which $16,689, $6,623 and $592 is expected to
be recognized in 2008, 2009 and 2010, respectively. The Company
satisfies the requirement for common shares for share-based
payments to employees pursuant to the Hanesbrands OIP by issuing
newly authorized shares. The Hanesbrands OIP authorized
13,105 shares for awards of stock options and restricted
stock units, of which 7,279 were available for future grants.
The employees of the Company participated in the stock-based
compensation plans of Sara Lee prior to the Companys spin
off on September 5, 2006. As a result of the spin off and
consistent with the terms of the awards under Sara Lees
plans, the outstanding Sara Lee stock options granted expired
six months after the spin off date. In connection with the spin
off, vesting for all nonvested service-based Sara Lee RSUs was
accelerated to the spin off date resulting in the recognition of
$5,447 of additional compensation expense for the six months
ended December 30, 2006. An insignificant number of
performance-based Sara Lee RSUs remained unvested through the
spin off date.
Employee
Stock Purchase Plan
During April 2007, the Company implemented the Hanesbrands Inc.
Employee Stock Purchase Plan of 2006 (the ESPP),
which is qualified under Section 423 of the Internal
Revenue Code. An aggregate of up to 2,442 shares of
Hanesbrands common stock may be purchased by eligible employees
pursuant to the ESPP. The purchase price for shares under the
ESPP is equal to 85% of the stocks fair market value on
the purchase
F-22
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
date. During the year ended December 29, 2007,
78 shares were purchased under the ESPP by eligible
employees. The Company had 2,364 shares of common available
for issuance under the ESPP as of December 29, 2007. The
Company recognized $440 of stock compensation expense under the
ESPP during the year ended December 29, 2007.
The reported results for the year ended December 29, 2007,
six months ended December 30, 2006 and years ended
July 1, 2006 and July 2, 2005 reflect amounts
recognized for restructuring actions, including the impact of
certain actions that were completed for amounts more favorable
than previously estimated. The impact of restructuring on income
before income tax expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Restructuring programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 30, 2007 restructuring actions
|
|
$
|
70,050
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Six months ended December 30, 2006 restructuring actions
|
|
|
13,128
|
|
|
|
33,289
|
|
|
|
|
|
|
|
|
|
Year ended July 1, 2006 restructuring actions
|
|
|
163
|
|
|
|
(398
|
)
|
|
|
4,119
|
|
|
|
|
|
Year ended July 2, 2005 restructuring actions
|
|
|
154
|
|
|
|
(504
|
)
|
|
|
(2,700
|
)
|
|
|
54,012
|
|
Year ended July 3, 2004 and prior restructuring actions
|
|
|
(312
|
)
|
|
|
90
|
|
|
|
(1,520
|
)
|
|
|
(2,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in income before income tax expense
|
|
$
|
83,183
|
|
|
$
|
32,477
|
|
|
$
|
(101
|
)
|
|
$
|
51,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table illustrates where the costs (income)
associated with these actions are recognized in the Consolidated
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Cost of sales
|
|
$
|
36,912
|
|
|
$
|
21,199
|
|
|
$
|
|
|
|
$
|
|
|
Selling, general and administrative expenses
|
|
|
2,540
|
|
|
|
|
|
|
|
|
|
|
|
4,549
|
|
Restructuring
|
|
|
43,731
|
|
|
|
11,278
|
|
|
|
(101
|
)
|
|
|
46,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in income before income tax expense
|
|
$
|
83,183
|
|
|
$
|
32,477
|
|
|
$
|
(101
|
)
|
|
$
|
51,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Components of the restructuring actions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Accelerated depreciation
|
|
$
|
39,452
|
|
|
$
|
21,199
|
|
|
$
|
|
|
|
$
|
4,549
|
|
Employee termination and other benefits
|
|
|
31,780
|
|
|
|
11,278
|
|
|
|
456
|
|
|
|
44,270
|
|
Fixed asset impairment
|
|
|
1,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncancelable lease and other contractual obligations
|
|
|
10,094
|
|
|
|
|
|
|
|
(557
|
)
|
|
|
2,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,183
|
|
|
$
|
32,477
|
|
|
$
|
(101
|
)
|
|
$
|
51,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rollforward of accrued restructuring is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Beginning accrual
|
|
$
|
17,029
|
|
|
$
|
21,938
|
|
|
$
|
51,677
|
|
|
$
|
29,857
|
|
Restructuring expenses
|
|
|
46,762
|
|
|
|
12,180
|
|
|
|
4,119
|
|
|
|
49,463
|
|
Cash payments
|
|
|
(35,517
|
)
|
|
|
(16,172
|
)
|
|
|
(29,638
|
)
|
|
|
(25,158
|
)
|
Adjustments to restructuring expenses
|
|
|
(4,924
|
)
|
|
|
(917
|
)
|
|
|
(4,220
|
)
|
|
|
(2,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending accrual
|
|
$
|
23,350
|
|
|
$
|
17,029
|
|
|
$
|
21,938
|
|
|
$
|
51,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accrual balance as of December 29, 2007 is comprised of
$19,636 in current accrued liabilities and $3,714 in other
noncurrent liabilities in the Consolidated Balance Sheet. The
noncurrent portion is primarily related to lease termination
payments.
Adjustments to previous estimates resulted from actual costs to
settle obligations being lower than expected. The adjustments
were reflected in the Restructuring line of the
Consolidated Statements of Income.
Year
Ended December 29, 2007 Restructuring Actions
During the year ended December 29, 2007, the Company, in
connection with its consolidation and globalization strategy,
approved actions to close 17 manufacturing facilities and three
distribution centers in the Dominican Republic, Mexico, the
United States, Brazil and Canada. All actions are expected to be
completed within a
12-month
period. The net impact of these actions was to reduce income
before income tax expense by $70,050 in the year ended
December 29, 2007.
The Company recognized $33,804 in the year ended
December 29, 2007, which represents costs associated with
the planned termination of 6,641 employees for employee
termination and other benefits recognized in accordance with
benefit plans previously communicated to the affected employee
group. This charge is reflected in the Restructuring
line of the Consolidated Statement of Income. As of
December 29, 2007, 3,712 employees had been terminated
and the severance obligation remaining in accrued liabilities on
the Consolidated Balance Sheet was $17,522.
The Company recognized $35,943 in the year ended
December 29, 2007, which represents accelerated
depreciation of buildings and equipment for facilities that have
been or will be closed in connection with its
F-24
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
consolidation and globalization strategy. This charge is
reflected in the Cost of sales and Selling,
general and administrative expenses lines of the
Consolidated Statement of Income.
The following table summarizes planned and actual employee
terminations by location as of December 29, 2007:
|
|
|
|
|
Number of Employees
|
|
Total
|
|
|
Dominican Republic
|
|
|
2,681
|
|
Mexico
|
|
|
2,311
|
|
United States
|
|
|
1,371
|
|
Brazil
|
|
|
175
|
|
Canada
|
|
|
103
|
|
|
|
|
|
|
|
|
|
6,641
|
|
|
|
|
|
|
Actions completed
|
|
|
3,712
|
|
Actions remaining
|
|
|
2,929
|
|
|
|
|
|
|
|
|
|
6,641
|
|
|
|
|
|
|
Six
Months Ended December 30, 2006 Restructuring
Actions
During the six months ended December 30, 2006, the Company,
in connection with its plans to migrate portions of its
manufacturing operations to lower-cost manufacturing facilities,
to improve alignment of sewing operations with the flow of
textiles and to consolidate production capacity, approved
various actions resulting in the closure of seven facilities.
The seven facilities include four textile and sewing plants in
the United States, Puerto Rico and Mexico and the three
distribution centers in the United States. All actions were
expected to be completed within a
12-month
period. In the six months ended December 30, 2006, these
actions reduced income before income tax expense by $33,289. As
of December 29, 2007, 2,743 employees had been
terminated and the severance obligation remaining in accrued
liabilities on the Consolidated Balance Sheet was $165.
During the year ended December 29, 2007, the Company
recognized additional restructuring charges associated with
plant closures announced in the six months ended
December 30, 2006, resulting in a decrease of $13,128 to
income before income tax expense. The Company recognized charges
of $10,404 for lease termination costs associated with plant
closures announced in the six months ended December 30,
2006, for facilities which were exited in the year ended
December 29, 2007. The additional charges are reflected in
the Cost of sales and Restructuring
lines of the Consolidated Statements of Income. As of
December 29, 2007, the lease termination costs remaining in
accrued restructuring on the Consolidated Balance Sheet was
$3,394.
The Company recognized $813 in the year ended December 29,
2007, which represents costs associated with the impairment of
fixed assets. This charge is reflected in the
Restructuring line of Consolidated Statement of
Income.
F-25
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
The following table summarizes planned and actual employee
terminations by location as of December 29, 2007:
|
|
|
|
|
Number of Employees
|
|
Total
|
|
|
United States
|
|
|
967
|
|
Mexico
|
|
|
1,781
|
|
|
|
|
|
|
|
|
|
2,748
|
|
|
|
|
|
|
Actions completed
|
|
|
2,743
|
|
Actions remaining
|
|
|
5
|
|
|
|
|
|
|
|
|
|
2,748
|
|
|
|
|
|
|
Year
Ended July 1, 2006 Restructuring Actions
During year ended July 1, 2006, the Company approved a
series of actions to exit certain defined business activities
and to lower its cost structure. Each of these actions was to be
completed within a
12-month
period after being approved. The net impact of these actions was
to reduce income before income tax expense by $4,119 in the year
ended July 1, 2006. This charge is reflected in the
Restructuring line of Consolidated Statement of
Income.
This charge reflects the cost associated with terminating
482 employees (284 in the United States and 198 in Mexico)
and providing them with severance benefits in accordance with
existing benefit plans or local employment laws. As of
December 29, 2007, all of the employees have been
terminated and the severance obligation remaining in accrued
liabilities on the Consolidated Balance Sheet was $144.
Year
Ended July 2, 2005 and Prior Period Restructuring
Actions
During the year ended July 2, 2005, the Company approved a
series of actions to exit certain defined business activities
and to lower its cost structure. Each of these actions was to be
completed within a
12-month
period after being approved. In the year ended July 2, 2005
these actions reduced income before income tax expense by
$54,012.
This charge reflects the cost associated with terminating
1,012 employees (687 in the United States, 186 in Canada
and 139 in Mexico) and providing them with severance benefits in
accordance with existing benefit plans or local employment laws.
This cumulative charge is reflected in the
Restructuring line in the Consolidated Statements of
Income for the year ended December 29, 2007, six months
ended December 30, 2006, and years ended July 1, 2006
and July 2, 2005. As of December 29, 2007, all of the
employees have been terminated and the severance obligation
remaining in accrued liabilities on the Consolidated Balance
Sheet was $1,551.
As of December 29, 2007, the lease termination costs
remaining in accrued liabilities on the Consolidated Balance
Sheet was $574.
The Company recognized $1,044 in the year ended
December 29, 2007, which represents costs associated with
the impairment of fixed assets based upon the proceeds from the
final disposition being lower than originally anticipated. This
charge is reflected in the Restructuring line of
Consolidated Statement of Income.
F-26
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
143,430
|
|
|
$
|
111,503
|
|
Work in process
|
|
|
156,052
|
|
|
|
197,645
|
|
Finished goods
|
|
|
817,570
|
|
|
|
907,353
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,117,052
|
|
|
$
|
1,216,501
|
|
|
|
|
|
|
|
|
|
|
Property is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
37,969
|
|
|
$
|
22,234
|
|
Buildings and improvements
|
|
|
412,326
|
|
|
|
412,558
|
|
Machinery and equipment
|
|
|
1,014,112
|
|
|
|
1,154,329
|
|
Construction in progress
|
|
|
33,746
|
|
|
|
22,928
|
|
Capital leases
|
|
|
12,262
|
|
|
|
19,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,510,415
|
|
|
|
1,631,836
|
|
Less accumulated depreciation
|
|
|
976,129
|
|
|
|
1,074,970
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
$
|
534,286
|
|
|
$
|
556,866
|
|
|
|
|
|
|
|
|
|
|
The Company had the following short-term obligations at
December 29, 2007 and December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
|
|
Interest
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
Rate
|
|
|
2007
|
|
|
2006
|
|
|
Short term revolving facility in China
|
|
|
5.59
|
%
|
|
$
|
6,334
|
|
|
$
|
6,554
|
|
Short term revolving facility in India
|
|
|
10.50
|
%
|
|
|
6,245
|
|
|
|
3,877
|
|
Other
|
|
|
6.70
|
%
|
|
|
6,998
|
|
|
|
3,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,577
|
|
|
$
|
14,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had a short-term revolving facility arrangement with
a Chinese branch of a U.S. bank amounting to RMB
56 million ($7,661) of which $6,334 was outstanding at
December 29, 2007 which accrues interest at 5.59%. The
facility, renewable annually, was initially in the amount of RMB
30 million and was increased to RMB 56 million as of
December 30, 2006. Borrowings under the facility accrue
interest at the prevailing base lending rates published by the
Peoples Bank of China from time to time less 10%. The
Company was in compliance with the covenants contained in this
facility at December 29, 2007.
The Company had a short-term revolving facility arrangement with
an Indian branch of a U.S. bank amounting to INR
259 million ($6,560) of which $6,245 was outstanding at
December 29, 2007 which accrues
F-27
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
interest at 10.5%. The Company was in compliance with the
covenants contained in this facility at December 29, 2007.
The Company had other short-term obligations amounting to $6,998
which consisted of a short-term revolving facility arrangement
with a Japanese branch of a U.S. bank amounting to JPY
1,100 million ($9,671) of which $2,010 was outstanding at
December 29, 2007 which accrues interest at 2.50%, multiple
short-term credit facilities and promissory notes acquired as
part of the Companys acquisition of a sewing facility in
Thailand, totaling THB 200 million ($6,612) of which $1,339
was outstanding at December 29, 2007 which accrues interest
at an average rate of 5.59%, and a short-term revolving facility
arrangement with a Mexican branch of a U.S. bank amounting
to MXN 163 million ($15,024) of which $3,649 was
outstanding at December 29, 2007 which accrues interest at
9.42%. The Company was in compliance with the covenants
contained in the facilities at December 29, 2007.
In addition, the Company has short-term revolving credit
facilities in various other locations that can be drawn on from
time to time amounting to $64 million of which $0 was
outstanding at December 29, 2007.
In connection with the acquisition of Industrias Duraflex, S.A.
de C.V. in August, 2007, the Company issued a non-interest
bearing note payable to the former owners in the amount of
$27,050, which was paid in full as of December 29, 2007.
Total interest paid on notes payable was $1,175, $308, $2,588
and $4,041 in the year ended December 29, 2007, six months
ended December 30, 2006 and years ended July 1, 2006
and July 2, 2005, respectively.
The Company had the following long-term obligations at
December 29, 2007 and December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
|
|
Interest
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
Rate
|
|
|
2007
|
|
|
2006
|
|
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
Term A
|
|
|
6.37
|
%
|
|
$
|
139,000
|
|
|
$
|
246,875
|
|
Term B
|
|
|
6.78
|
%
|
|
|
976,250
|
|
|
|
1,296,500
|
|
Second Lien Credit Facility
|
|
|
8.82
|
%
|
|
|
450,000
|
|
|
|
450,000
|
|
Floating Rate Senior Notes
|
|
|
8.20
|
%
|
|
|
500,000
|
|
|
|
500,000
|
|
Accounts Receivable Securitization
|
|
|
5.93
|
%
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,315,250
|
|
|
$
|
2,493,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the spin off on September 5, 2006, the
Company entered into a $2,150,000 senior secured credit facility
(the Senior Secured Credit Facility), a $450,000
senior secured second lien credit facility (the Second
Lien Credit Facility) and a $500,000 bridge loan facility
(the Bridge Loan Facility). The Bridge Loan Facility
was paid off in full through the issuance of $500,000 of
floating rate senior notes (the Floating Rate Senior
Notes) issued in December 2006. On November 27, 2007,
we entered into an accounts receivable securitization facility
(the Receivables Facility), which provides for up to
$250,000 in funding accounted for as a secured borrowing,
limited to the availability of eligible receivables, and is
secured by certain domestic trade receivables. The outstanding
balances at December 29, 2007 are reported in the
Long-term debt line of the Consolidated Balance
Sheet.
F-28
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Total cash paid for interest related to the long-term debt
during the year ended December 29, 2007 was $165,331.
Senior
Secured Credit Facility
The Senior Secured Credit Facility initially provided for
aggregate borrowings of $2,150,000, consisting of: (i) a
$250,000 Term A loan facility (the Term A Loan
Facility); (ii) a $1,400,000 Term B loan facility
(the Term B Loan Facility); and (iii) a
$500,000 revolving loan facility (the Revolving Loan
Facility). The Senior Secured Credit Facility is
guaranteed by substantially all of Hanesbrands
U.S. subsidiaries and is secured by equity interests in
substantially all of Hanesbrands direct and indirect
U.S. subsidiaries and 65% of the voting securities of
certain foreign subsidiaries and substantially all present and
future assets of Hanesbrands and the guarantors. At the
Companys option, borrowings under the Senior Secured
Credit Facility may be maintained from time to time as
(a) Base Rate loans, which shall bear interest at the
higher of (i) 1/2 of 1% in excess of the federal funds rate
and (ii) the rate published in the Wall Street Journal as
the prime rate (or equivalent), in each case in
effect from time to time, plus the applicable margin in effect
from time to time (which is currently 0.50% for the Term A Loan
Facility and the Revolving Loan Facility and 0.75% for the Term
B Loan Facility), or (b) LIBOR based loans, which shall
bear interest at the LIBO Rate (as defined in the Senior Secured
Credit Facility and adjusted for maximum reserves), as
determined by the administrative agent for the respective
interest period plus the applicable margin in effect from time
to time (which is currently 1.50% for the Term A Loan Facility
and the Revolving Loan Facility and the 1.75% for Term B Loan
Facility). The final maturity of the Term A Loan Facility is
September 5, 2012. The Term A Loan Facility amortizes in an
amount per annum equal to the following: year 1
5.00%; year 2 10.00%; year 3 15.00%;
year 4 20.00%; year 5 25.00%; year
6 25.00%. The final maturity of the Term B Loan
Facility is September 5, 2013. The Term B Loan Facility is
payable in equal quarterly installments in an amount equal to 1%
per annum, with the balance due on the maturity date. The final
maturity of the Revolving Loan Facility is September 5,
2011. As of December 29, 2007, the Company had $0
outstanding under the Revolving Loan Facility, $69,631 of
standby and trade letters of credit issued and outstanding under
this facility and $430,369 of borrowing availability. At
December 29, 2007, the interest rates on the Term A Loan
Facility and the Term B Loan Facility were 6.37% and 6.78%
respectively. Outstanding borrowings under the Senior Secured
Credit Facility are prepayable without penalty.
On February 22, 2007, the Company entered into a First
Amendment (the First Amendment) to the Senior
Secured Credit Facility. Pursuant to the First Amendment, the
applicable margin with respect to the $1,400,000
Term B loan facility (Term B Loan Facility) that
comprises a part of the Senior Secured Credit Facility was
reduced from 2.25% to 1.75% with respect to loans maintained as
LIBO Rate loans, and from 1.25% to 0.75% with
respect to loans maintained as Base Rate loans. The
First Amendment also provides that in the event that, prior to
February 22, 2008, the Company: (i) incurs a new
tranche of replacement loans constituting obligations under the
Senior Secured Credit Facility having an effective interest rate
margin less than the applicable margin for loans pursuant to the
Term B Loan Facility (Term B Loans), the proceeds of
which are used to repay or return, in whole or in part,
principal of the outstanding Term B Loans, (ii) consummates
any other amendment to the Senior Secured Credit Facility that
reduces the applicable margin for the Term B Loans, or
(iii) incurs additional Term B Loans having an effective
interest rate margin less than the applicable margin for Term B
Loans, the proceeds of which are used in whole or in part to
prepay or repay outstanding Term B Loans, then in any such case,
the Company will pay to the Administrative Agent, for the
ratable account of each Lender with outstanding Term B Loans, a
fee in an amount equal to 1.0% of the aggregate principal amount
of all Term B Loans being replaced on such date immediately
prior to the effectiveness of such transaction.
F-29
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
The Senior Secured Credit Facility requires the Company to
comply with customary affirmative, negative, and financial
covenants, and includes customary events of default. As of
December 29, 2007, the Company was in compliance with all
covenants.
Second
Lien Credit Facility
The Second Lien Credit Facility provides for aggregate
borrowings of $450,000 by Hanesbrands wholly-owned
subsidiary, HBI Branded Apparel Limited, Inc. The Second Lien
Credit Facility is unconditionally guaranteed by Hanesbrands and
each entity guaranteeing the Senior Secured Credit Facility. The
Second Lien Credit Facility and the guarantees in respect
thereof are secured on a second-priority basis (subordinate only
to the Senior Secured Credit Facility and any permitted
additions thereto or refinancings thereof) by substantially all
of the assets that secure the Senior Secured Credit Facility.
Loans under the Second Lien Credit Facility bear interest in the
same manner as those under the Senior Secured Credit Facility,
subject to a margin of 2.75% for Base Rate loans and 3.75% for
LIBOR based loans. The Second Lien Credit Facility matures on
March 5, 2014, may not be prepaid prior to
September 5, 2007, and includes premiums for prepayment of
the loan prior to September 5, 2009 based upon timing of
the prepayments. The Second Lien Credit Facility will not
amortize and will be repaid in full on its maturity date. At
December 29, 2007 the interest rate on the Second Lien
Credit Facility was 8.82%. The Second Lien Credit Facility
requires the Company to comply with customary affirmative,
negative, and financial covenants, and includes customary events
of default. As of December 29, 2007, the Company was in
compliance with all covenants.
Floating
Rate Senior Notes
On December 14, 2006, the Company issued $500,000 aggregate
principal amount of Floating Rate Senior Notes due 2014. The
Floating Rate Senior Notes are senior unsecured obligations that
rank equal in right of payment with all of the Companys
existing and future unsubordinated indebtedness. The Floating
Rate Senior Notes bear interest at an annual rate, reset
semi-annually, equal to the London Interbank Offered Rate, or
LIBOR, plus 3.375%. Interest is payable on the Floating Rate
Senior Notes on June 15 and December 15 of each year beginning
on June 15, 2007. The Floating Rate Senior Notes will
mature on December 15, 2014. The net proceeds from the sale
of the Floating Rate Senior Notes were approximately $492,000.
These proceeds, together with working capital, were used to
repay in full the $500,000 outstanding under the Bridge Loan
Facility. The Floating Rate Senior Notes are guaranteed by
substantially all of the Companys domestic subsidiaries.
The Floating Rate Senior Notes are redeemable on or after
December 15, 2008, subject to premiums based upon timing of
the prepayments.
Accounts
Receivable Securitization
On November 27, 2007, the Company entered into the
Receivables Facility, which provides for up to $250,000 in
funding accounted for as a secured borrowing, limited to the
availability of eligible receivables, and is secured by certain
domestic trade receivables. The Receivables Facility will
terminate on November 27, 2010. Under the terms of the
Receivables Facility, the company sells, on a revolving basis,
certain domestic trade receivables to HBI Receivables LLC
(Receivables LLC), a wholly-owned bankruptcy-remote
subsidiary that in turn uses the trade receivables to secure the
borrowings, which are funded through conduits that issue
commercial paper in the short-term market and are not affiliated
with the Company or through committed bank purchasers if the
conduits fail to fund. The assets and liabilities of Receivables
LLC are fully reflected on our Consolidated Balance Sheet, and
the securitization is treated as a secured borrowing for
accounting purposes. The borrowings under the Receivables
Facility remain outstanding throughout the term of the
F-30
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
agreement subject to the Company maintaining sufficient eligible
receivables, by continuing to sell trade receivables to
Receivables LLC, unless an event of default occurs.
Availability of funding under the facility depends primarily
upon the eligible outstanding receivables balance. As of
December 29, 2007, the Company had $250,000 outstanding
under the Receivables Facility. The outstanding balance under
the Receivables Facility is reported on the Companys
Consolidated Balance Sheet in long-term debt based on the
three-year term of the agreement and the fact that remittances
on the receivables do not automatically reduce the outstanding
borrowings. All of the proceeds from the Receivables Facility
were used to make a prepayment of principal under the Senior
Secured Credit Facility. Unless the conduits fail to fund, the
yield on the commercial paper, which is the conduits cost
to issue the commercial paper plus certain dealer fees, is
considered a financing cost and is included in interest expense
on the Consolidated Statement of Income. If the conduits fail to
fund, the Receivables Facility would be funded through committed
bank purchasers, and the interest rate payable at the
Companys option at the rate announced from time to time by
JPMorgan as its prime rate or at the LIBO Rate (as defined in
the Receivables Facility) plus the applicable margin in effect
from time to time. The average blended rate utilized for the
period from November 27, 2007 through December 29,
2007 was 5.93%.
The total amount of receivables used as collateral for the
credit facility was $495,245 at December 29, 2007 and is
reported on the Companys Consolidated Balance Sheet in
trade accounts receivables less allowances.
Bridge
Loan Facility
Prior to its repayment in full, the Bridge Loan Facility
provided for a borrowing of $500,000 and was unconditionally
guaranteed by each entity guaranteeing the Senior Secured Credit
Facility. The Bridge Loan Facility was unsecured and was
scheduled to mature on September 5, 2007. If the Bridge
Loan Facility had not been repaid prior to or at maturity, the
outstanding principal amount of the facility was to roll over
into a rollover loan in the same amount that was to mature on
September 5, 2014. Lenders that extended rollover loans to
the Company would have been entitled to request that the Company
issue exchange notes to them in exchange for the
rollover loans, and also to request that the Company register
such notes upon request. All amounts outstanding were repaid
through the issuance of Floating Rate Senior Notes.
Future principal payments for all of the facilities described
above are as follows: $0 due in 2008, $0 due in 2009, $282,750
due in 2010, $46,875 due in 2011, $59,375 due in 2012 and
$1,926,250 thereafter. Reflected in these future principal
payments were prepayments of $425,000 and $100,000 made during
the year ended December 29, 2007 and six months ended
December 30, 2006, respectively. The prepayments relieved
any requirement for the Company to make mandatory payments on
the Term A and Term B Loan Facilities through 2009.
The Company incurred $3,266 in debt issuance costs in connection
with entering into the First Amendment and the Receivables
Facility during the year ended December 29, 2007 and
$50,248 in debt issuance costs in connection with the issuance
of the Senior Secured Credit Facility, the Second Lien Facility,
Bridge Loan Facility and the Floating Rate Senior Notes during
the six months ended December 30, 2006. Debt issuance costs
are amortized to interest expense over the respective lives of
the debt instruments, which range from five to eight years. As
of December 29, 2007, the net carrying value was $32,070
which is included in other noncurrent assets in the Consolidated
Balance Sheet. The Companys debt issuance cost
amortization was $6,475 and $2,279 for the year ended
December 29, 2007 and six months ended December 30,
2006, respectively.
F-31
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
The Company recognized $5,235 of losses on early extinguishment
of debt in the year ended December 29, 2007 related to
prepayments of $425,000 on the Senior Secured Credit Facility.
During the six months ended December 30, 2006, the Company
recognized $7,401 of losses on early extinguishment of debt
which is comprised of a $6,125 loss for unamortized debt
issuance costs on the Bridge Loan Facility in connection with
the issuance of the Floating Rate Senior Notes and a $1,276 loss
related to unamortized debt issuance costs on the Senior Secured
Credit Facility for the prepayment of $100,000 of principal in
December 2006. As discussed above, the proceeds from the
issuance of the Floating Rate Senior Notes were used to repay
the entire outstanding principal of the Bridge Loan Facility.
|
|
(10)
|
Comprehensive
Income
|
SFAS No. 130, Reporting Comprehensive Income,
requires that all components of comprehensive income,
including net income, be reported in the financial statements in
the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from
transactions and other events and circumstances from non-owner
sources. Net income and other comprehensive income, including
foreign currency translation adjustments, minimum pension
liabilities (for periods prior to adoption of SFAS 158),
all unrecognized prior service costs and net loss or gain
arising during the period (for periods after adoption of
SFAS 158) and unrealized gains and losses on
qualifying cash flow hedges, shall be reported, net of their
related tax effect, to arrive at comprehensive income. The
Companys comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Net income
|
|
$
|
126,127
|
|
|
$
|
74,139
|
|
|
$
|
322,493
|
|
|
$
|
218,509
|
|
Translation adjustments
|
|
|
20,114
|
|
|
|
(5,989
|
)
|
|
|
13,518
|
|
|
|
15,187
|
|
Net unrealized loss on cash flow hedges, net of tax of $4,456,
$453, $2,358 and $380, respectively
|
|
|
(6,877
|
)
|
|
|
(597
|
)
|
|
|
(3,693
|
)
|
|
|
(1,028
|
)
|
Minimum pension liability, net of tax of $6,281
|
|
|
|
|
|
|
(9,864
|
)
|
|
|
|
|
|
|
|
|
Other changes in pension and postretirement plan assets and
benefit obligations, net of tax of $23,866
|
|
|
37,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement income released through other comprehensive
income, net of tax of $1,459
|
|
|
(2,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of gain from health-care plan settlement, net of tax
of $12,505
|
|
|
(19,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts amortized into net periodic income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition asset, net of tax of $24
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service benefit, net of tax of $2,854
|
|
|
(4,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss, net of tax of $1,433
|
|
|
2,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
152,648
|
|
|
$
|
57,689
|
|
|
$
|
332,318
|
|
|
$
|
232,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balances reported in the above table are net of the federal,
state and foreign statutory tax rates, as applicable.
In connection with the spin off on September 5, 2006, the
Company assumed obligations relating to the Companys
current and former employees included within Sara Lee sponsored
pension and retirement plans, including $53,813 of additional
minimum pension liability that has not been reflected in
comprehensive
F-32
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
income for the six months ended December 30, 2006 but is,
however, included in accumulated other comprehensive loss at
December 30, 2006.
During the six months ended December 30, 2006, the Company
adopted one provision of SFAS 158 which requires a company
to report the unfunded positions of employee benefit plans on
the balance sheet while all other deferred charges are reported
as a component of accumulated other comprehensive income. The
impact of adopting the SFAS 158 provision was $19,079, net
of tax, which is not reflected in comprehensive income but is,
however, included in accumulated other comprehensive loss at
December 30, 2006.
The components of accumulated other comprehensive loss are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Cumulative
|
|
|
(Loss)
|
|
|
Pension
|
|
|
|
|
|
Other
|
|
|
|
Translation
|
|
|
on Cash Flow
|
|
|
and
|
|
|
Income
|
|
|
Comprehensive
|
|
|
|
Adjustment
|
|
|
Hedges
|
|
|
Post-Retirement
|
|
|
Taxes
|
|
|
Loss
|
|
|
Balance at July 2, 2005
|
|
$
|
(18,413
|
)
|
|
$
|
475
|
|
|
$
|
|
|
|
$
|
(271
|
)
|
|
$
|
(18,209
|
)
|
Other comprehensive income (loss) activity
|
|
|
13,518
|
|
|
|
(6,051
|
)
|
|
|
|
|
|
|
2,358
|
|
|
|
9,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2006
|
|
$
|
(4,895
|
)
|
|
$
|
(5,576
|
)
|
|
$
|
|
|
|
$
|
2,087
|
|
|
$
|
(8,384
|
)
|
Other comprehensive income (loss) activity
|
|
|
(5,989
|
)
|
|
|
(1,050
|
)
|
|
|
(72,412
|
)
|
|
|
28,267
|
|
|
|
(51,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2006
|
|
$
|
(10,884
|
)
|
|
$
|
(6,626
|
)
|
|
$
|
(72,412
|
)
|
|
$
|
30,354
|
|
|
$
|
(59,568
|
)
|
Other comprehensive income (loss) activity
|
|
|
20,114
|
|
|
|
(11,268
|
)
|
|
|
28,245
|
|
|
|
(6,441
|
)
|
|
|
30,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2007
|
|
$
|
9,230
|
|
|
$
|
(17,894
|
)
|
|
$
|
(44,167
|
)
|
|
$
|
23,913
|
|
|
$
|
(28,918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company leases certain buildings, equipment and vehicles
under agreements that are classified as capital leases. The
building leases have original terms that range from one to
15 years, while the equipment and vehicle leases generally
have terms of less than seven years.
The gross amount of plant and equipment and related accumulated
depreciation recorded under capital leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Buildings
|
|
$
|
7,624
|
|
|
$
|
7,624
|
|
Machinery and equipment
|
|
|
4,494
|
|
|
|
3,700
|
|
Vehicles
|
|
|
144
|
|
|
|
8,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,262
|
|
|
|
19,787
|
|
Less accumulated depreciation
|
|
|
10,422
|
|
|
|
17,883
|
|
|
|
|
|
|
|
|
|
|
Net capital leases
|
|
$
|
1,840
|
|
|
$
|
1,904
|
|
|
|
|
|
|
|
|
|
|
F-33
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Depreciation expense for capital lease assets was $886 in the
year ended December 29, 2007, $1,003 in the six months
ended December 30, 2006, $3,233 in the year ended
July 2, 2006 and $4,467 in the year ended July 1, 2005.
Rental expense under operating leases was $47,366 in the year
ended December 29, 2007, $27,590 in the six months ended
December 30, 2006, $54,874 in the year ended July 2,
2006 and $52,055 in the year ended July 1, 2005.
Future minimum lease payments under noncancelable operating
leases (with initial or remaining lease terms in excess of one
year) and future minimum capital lease payments as of
December 29, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Year:
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
990
|
|
|
$
|
35,413
|
|
2009
|
|
|
771
|
|
|
|
29,599
|
|
2010
|
|
|
238
|
|
|
|
24,985
|
|
2011
|
|
|
52
|
|
|
|
20,228
|
|
2012
|
|
|
|
|
|
|
15,055
|
|
Thereafter
|
|
|
|
|
|
|
35,177
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
2,051
|
|
|
$
|
160,457
|
|
Less amount representing interest
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum capital lease payments
|
|
|
1,870
|
|
|
|
|
|
Less current installments of obligations under capital leases
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under capital leases, excluding current installments
|
|
$
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
|
Commitments
and Contingencies
|
The Company is a party to various pending legal proceedings,
claims and environmental actions by government agencies. In
accordance with SFAS No. 5, Accounting for
Contingencies , the Company records a provision with respect
to a claim, suit, investigation, or proceeding when it is
probable that a liability has been incurred and the amount of
the loss can reasonably be estimated. Any provisions are
reviewed at least quarterly and are adjusted to reflect the
impact and status of settlements, rulings, advice of counsel and
other information pertinent to the particular matter. The
recorded liabilities for these items were not material to the
Consolidated Financial Statements of the Company in any of the
years presented. Although the outcome of such items cannot be
determined with certainty, the Companys legal counsel and
management are of the opinion that the final outcome of these
matters will not have a material adverse impact on the
consolidated financial position, results of operations or
liquidity.
License
Agreements
The Company is party to several royalty-bearing license
agreements for use of third-party trademarks in certain of their
products. The license agreements typically require a minimum
guarantee to be paid either at the commencement of the
agreement, by a designated date during the term of the agreement
or by the end of the agreement period. When payments are made in
advance of when they are due, the Company records a
F-34
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
prepayment and amortizes the expense in the Cost of
sales line of the Consolidated Statements of Income
uniformly over the guaranteed period. For guarantees required to
be paid at the completion of the agreement, royalties are
expensed through Cost of sales as the related sales
are made. Management has reviewed all license agreements and
concluded that these guarantees do not fall under Statement of
Financial Accounting Standards Interpretation No. 45
Guarantors Accounting and Disclosure Requirements for
Guarantees, including Indirect Guarantees of Indebtedness of
Others , and accordingly, there are no liabilities recorded
at inception of the agreements.
For the year ended December 29, 2007, the six months ended
December 30, 2006 and the years ended July 1, 2006 and
July 2, 2005, the Company incurred royalty expense of
approximately $11,583, $16,401, $12,554 and $10,571,
respectively. During the six months ended December 30,
2006, the Company incurred expense of $9,675 in connection with
the buy out of a license agreement and the settlement of certain
contractual terms relating to another license agreement. The
$9,675 was recorded in the Selling, general and
administrative expenses line of the Consolidated Statement
of Income.
Minimum amounts due under the license agreements are
approximately $8,012 in 2008, $7,001 in 2009, $7,017 in 2010,
$1,291 in 2011 and $60 in 2012. In addition to the minimum
guaranteed amounts under license agreements, in the year ended
December 29, 2007 the Company entered into a partnership
agreement which included a minimum fee of $6,300 for each year
from 2008 through 2017.
|
|
(13)
|
Intangible
Assets and Goodwill
|
The primary components of the Companys intangible assets
and the related accumulated amortization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Value
|
|
|
Year ended December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and brand names
|
|
$
|
188,300
|
|
|
$
|
63,157
|
|
|
$
|
125,143
|
|
Computer software
|
|
|
51,893
|
|
|
|
25,770
|
|
|
|
26,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
240,193
|
|
|
$
|
88,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value of intangible assets
|
|
|
|
|
|
|
|
|
|
$
|
151,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Value
|
|
|
Six months ended December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and brand names
|
|
$
|
182,520
|
|
|
$
|
53,616
|
|
|
$
|
128,904
|
|
Computer software
|
|
|
33,091
|
|
|
|
24,814
|
|
|
|
8,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
215,611
|
|
|
$
|
78,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value of intangible assets
|
|
|
|
|
|
|
|
|
|
$
|
137,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
The amortization expense for intangibles subject to amortization
was $6,205 in for the year ended December 29, 2007, $3,466
in the six months ended December 30, 2006, $9,031 for the
year ended July 1, 2006 and $9,100 for the year ended
July 2, 2005. The estimated amortization expense for the
next five years, assuming no change in the estimated useful
lives of identifiable intangible assets or changes in foreign
exchange rates is as follows: $9,838 in 2008, $9,413 in 2009,
$8,250 in 2010, $6,717 in 2011 and $6,717 in 2012.
No impairment charges were recognized in for the year ended
December 29, 2007, the six months ended December 30,
2006, for the year ended July 1, 2006 or for the year ended
July 2, 2005. However, in prior years as a result of the
annual impairment reviews, the Company concluded that certain
trademarks had lives that were no longer indefinite. As a result
of this conclusion, trademarks with a net book value of $79,044
and $51,524 for the year ended July 1, 2006 and for the
year ended July 2, 2005, respectively, were moved from the
indefinite lived category and amortization was initiated over a
30-year
period.
Goodwill and the changes in those amounts during the period are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
|
Outerwear
|
|
|
Hosiery
|
|
|
International
|
|
|
Total
|
|
Net book value at July 1, 2006
|
|
$
|
198,767
|
|
|
$
|
45,243
|
|
|
$
|
21,702
|
|
|
$
|
12,943
|
|
|
$
|
278,655
|
|
Acquisition of business
|
|
|
2,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,766
|
|
Foreign exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value at December 30, 2006
|
|
$
|
201,533
|
|
|
$
|
45,243
|
|
|
$
|
21,702
|
|
|
$
|
13,047
|
|
|
$
|
281,525
|
|
Acquisitions of businesses
|
|
|
9,931
|
|
|
|
17,468
|
|
|
|
1,517
|
|
|
|
|
|
|
|
28,916
|
|
Foreign exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value at December 29, 2007
|
|
$
|
211,464
|
|
|
$
|
62,711
|
|
|
$
|
23,219
|
|
|
$
|
13,031
|
|
|
$
|
310,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no impairment of goodwill in any of the periods
presented.
|
|
(14)
|
Financial
Instruments and Risk Management
|
|
|
(a)
|
Interest
Rate Derivatives
|
In connection with the spin off from Sara Lee on
September 5, 2006, the Company incurred debt of $2,600,000
plus an unfunded revolver with capacity of $500,000, all of
which bears interest at floating rates. During the year ended
December 29, 2007 and the six months ended
December 30, 2006, the Company has executed certain
interest rate cash flow hedges in the form of swaps and caps in
order to mitigate the Companys exposure to variability in
cash flows for the future interest payments on a designated
portion of borrowings.
The Company records gains and losses on these derivative
instruments using hedge accounting. Under this accounting
method, gains and losses are deferred into accumulated other
comprehensive loss until the hedged transaction impacts the
Companys earnings. However, on a quarterly basis hedge
ineffectiveness will be measured and any resulting
ineffectiveness will be recorded as gains or losses in the
respective measurement period.
F-36
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
During the year ended December 29, 2007 and the six months
ended December 30, 2006, the Company deferred losses of
$16,357 and $2,743, respectively, into accumulated other
comprehensive loss. There was no gain or loss recorded in
earnings as a result of hedge ineffectiveness for the year ended
December 29, 2007 and the six months ended
December 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
Interest Rates
|
|
Interest Rate Swaps
|
|
Principal
|
|
|
Receive
|
|
|
Pay
|
|
|
3 year: Receive variable-pay fixed
|
|
$
|
200,000
|
|
|
|
3-month LIBOR
|
|
|
|
5.18
|
%
|
4 year: Receive variable-pay fixed
|
|
|
100,000
|
|
|
|
3-month LIBOR
|
|
|
|
5.14
|
%
|
5 year: Receive variable-pay fixed
|
|
|
200,000
|
|
|
|
3-month LIBOR
|
|
|
|
5.15
|
%
|
1 year: Receive variable-pay fixed
|
|
|
100,000
|
|
|
|
6-month LIBOR
|
|
|
|
4.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
Interest Rates
|
|
|
|
|
Interest Rate Caps
|
|
Principal
|
|
|
Receive
|
|
|
Pay
|
|
|
|
|
|
2 year: Receive excess of index over cap
|
|
$
|
400,000
|
|
|
|
3-month LIBOR
|
|
|
|
5.75
|
%
|
|
|
|
|
2 year: Receive excess of index over cap
|
|
|
300,000
|
|
|
|
3-month LIBOR
|
|
|
|
5.75
|
%
|
|
|
|
|
3-year:
Receive excess of index over cap
|
|
|
250,000
|
|
|
|
6-month LIBOR
|
|
|
|
5.75
|
%
|
|
|
|
|
|
|
(b)
|
Foreign
Currency Derivatives
|
The Company uses forward exchange and option contracts to reduce
the effect of fluctuating foreign currencies on short-term
foreign currency-denominated transactions, foreign
currency-denominated investments, other known foreign currency
exposures and to reduce the effect of fluctuating commodity
prices on raw materials purchased for production. Gains and
losses on these contracts are intended to offset losses and
gains on the hedged transaction in an effort to reduce the
earnings volatility resulting from fluctuating foreign currency
exchange rates and fluctuating commodity prices.
Historically, the principal currencies hedged by the Company
include the European euro, Mexican peso, Canadian dollar and
Japanese yen. The following table summarizes by major currency
the contractual amounts of the Companys foreign exchange
forward contracts in U.S. dollars. The bought amounts
represent the net U.S. dollar equivalent of
commitments to purchase foreign currencies, and the sold amounts
represent the net U.S. dollar equivalent of
commitments to sell foreign currencies. The foreign currency
amounts have been translated into a U.S. dollar equivalent
value using the exchange rate at the reporting date. Forward
exchange contracts mature on the anticipated cash requirement
date of the hedged transaction, generally within one year. There
were no open foreign exchange forward contracts at
December 30, 2006.
|
|
|
|
|
|
|
December 29,
|
|
|
|
2007
|
|
|
Foreign currency sold:
|
|
|
|
|
Canadian dollar
|
|
$
|
(20,577
|
)
|
Japanese yen
|
|
|
(19,931
|
)
|
The Company uses foreign exchange option contracts to reduce the
foreign exchange fluctuations on anticipated purchase
transactions. There were no open foreign exchange option
contracts at December 29, 2007 and December 30, 2006.
F-37
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
(c)
|
Commodity
Derivatives
|
Cotton is the primary raw material the Company uses to
manufacture many of its products and is purchased at market
prices. In the year ended July 1, 2006, the Company started
to use commodity financial instruments to hedge the price of
cotton, for which there is a high correlation between the hedged
item and the hedged instrument. There were no amounts
outstanding under cotton futures contracts at December 29,
2007 and December 30, 2006. The notional amounts
outstanding under the options contracts were 41 and 108 bales of
cotton at December 29, 2007 and December 30, 2006,
respectively.
|
|
(d)
|
Net
Derivative Gain or Loss
|
For the interest rate swaps and caps and all forward exchange
and option contracts, the following table summarizes the net
derivative gains or losses deferred into accumulated other
comprehensive loss and reclassified to earnings in the year
ended December 29, 2007, the six months ended
December 30, 2006 and the years ended July 1, 2006 and
July 2, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Net accumulated derivative gain (loss) deferred at beginning of
year
|
|
$
|
(6,626
|
)
|
|
$
|
(5,576
|
)
|
|
$
|
475
|
|
|
$
|
1,883
|
|
Deferral of net derivative loss in accumulated other
comprehensive loss
|
|
|
(18,455
|
)
|
|
|
(2,604
|
)
|
|
|
(4,452
|
)
|
|
|
(1,620
|
)
|
Reclassification of net derivative loss (gain) to income
|
|
|
7,187
|
|
|
|
1,554
|
|
|
|
(1,599
|
)
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net accumulated derivative gain (loss) at end of year
|
|
$
|
(17,894
|
)
|
|
$
|
(6,626
|
)
|
|
$
|
(5,576
|
)
|
|
$
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to reclassify into earnings during the next
12 months net loss from accumulated other comprehensive
loss of approximately $10,659 at the time the underlying hedged
transactions are realized. During the year ended
December 29, 2007 and the six months ended
December 30, 2006 and the years ended July 1, 2006 and
July 2, 2005, the Company recognized income (expense) of
$80, $0, $0, and $(554), respectively, for hedge ineffectiveness
related to cash flow hedges. Amounts reported for hedge
ineffectiveness are not included in accumulated other
comprehensive loss and therefore, not included in the above
table.
There were no derivative losses excluded from the assessment of
effectiveness or gains or losses resulting from the
disqualification of hedge accounting for the year ended
December 29, 2007 and the six months ended
December 30, 2006 and the years ended July 1, 2006 and
July 2, 2005.
The carrying amounts of cash and cash equivalents, trade
accounts receivable, notes receivable, accounts payable and long
term debt approximated fair value as of December 29, 2007,
December 30, 2006, and July 1, 2006. The fair value of
long term debt approximates the carrying value as all the credit
facilities are at floating rates. The carrying amounts of the
Companys notes payable to parent companies, notes payable
to banks, notes payable to related entities and funding
receivable/payable with parent companies approximated fair value
as of December 29, 2007, December 30, 2006, and
July 1, 2006, primarily due to the short-term nature of
F-38
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
these instruments. The fair values of the remaining financial
instruments recognized in the Consolidated Balance Sheets of the
Company at the respective year ends were:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Interest rate swaps
|
|
$
|
(16,590
|
)
|
|
$
|
(2,743
|
)
|
Foreign currency forwards and options
|
|
|
196
|
|
|
|
|
|
Interest rate caps
|
|
|
304
|
|
|
|
711
|
|
Commodity forwards and options
|
|
|
266
|
|
|
|
1,597
|
|
The fair value of the swaps is determined based upon externally
developed pricing models, using financial market data obtained
from swap dealers. The fair value of the forwards and options is
based upon quoted market prices obtained from third-party
institutions.
|
|
(f)
|
Concentration
of Credit Risk
|
Trade accounts receivable due from customers that the Company
considers highly leveraged were $115,233 at December 29,
2007, $107,783 at December 30, 2006, $121,870 at
July 1, 2006 and $100,314 at July 2, 2005. The
financial position of these businesses has been considered in
determining allowances for doubtful accounts.
See Note 20 for disclosure of significant customer
concentrations by segment.
|
|
(15)
|
Defined
Benefit Pension Plans
|
During the year ended December 29, 2007, the Company
completed the separation of its pension plan assets and
liabilities from those of Sara Lee in accordance with
governmental regulations, which resulted in a higher total
amount of pension plan assets being transferred to the Company
than originally was estimated prior to the spin off. Prior to
spin off, the fair value of plan assets included in the annual
valuations represented a best estimate based upon a percentage
allocation of total assets of the Sara Lee trust. The separation
resulted in a reduction to pension liabilities of approximately
$74,000 with a corresponding credit to additional paid-in
capital and resulted in a decrease of approximately $6,000 to
pension expense for the year ended December 29, 2007.
Effective as of January 1, 2006, the Company created the
Hanesbrands Inc. Pension and Retirement Plan (the
Hanesbrands Pension Plan), a new frozen defined
benefit plan to receive assets and liabilities accrued under the
Sara Lee Pension Plan that are attributable to current and
former Company employees. In connection with the spin off on
September 5, 2006, the Company assumed Sara Lees
obligations under the Sara Lee Corporation Consolidated Pension
and Retirement Plan, the Sara Lee Supplemental Executive
Retirement Plan, the Sara Lee Canada Pension Plans and certain
other plans that related to the Companys current and
former employees and assumed other Sara Lee retirement plans
covering only Company employees. Prior to the spin off the
obligations were not included in the Companys Consolidated
Financial Statements. The Company also assumed two
noncontributory defined benefit plans, the Playtex Apparel, Inc.
Pension Plan (the Playtex Plan) and the National
Textiles, L.L.C. Pension Plan (the National Textiles
Plan). The obligations and costs related to all of these
plans are included in the Companys Consolidated Financial
Statements as of December 29, 2007 and December 30,
2006.
On September 29, 2006, SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans was issued. The objectives of
SFAS 158 are for an employer to a) recognize the
overfunded status of a plan as an asset and the underfunded
status of a plan as a liability in the balance sheet
F-39
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
and to recognize changes in the funded status in comprehensive
income or loss, and b) measure the funded status of a plan
as of the date of its balance sheet date. Additional minimum
pension liabilities and related intangible assets are also
derecognized upon adoption of the new standard. SFAS 158
requires initial application of the requirement to recognize the
funded status of a benefit plan and the related disclosure
provisions as of the end of fiscal years ending after
December 15, 2006. SFAS 158 requires initial
application of the requirement to measure plan assets and
benefit obligations as of the balance sheet date as of the end
of fiscal years ending after December 15, 2008. The Company
adopted part (a) of the statement as of December 30,
2006. The Company adopted part (b) of the statement as of
December 29, 2007. The following table summarizes the
effect of required changes in the additional minimum pension
liabilities (AML) as of December 30, 2006 prior to the
adoption of SFAS 158 as well as the impact of the initial
adoption of part (a) of SFAS 158:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to AML
|
|
|
AML
|
|
|
Post AML,
|
|
|
SFAS 158
|
|
|
Post AML,
|
|
|
|
and SFAS 158
|
|
|
Adjustment
|
|
|
Pre SFAS 158
|
|
|
Adjustment
|
|
|
Post SFAS 158
|
|
|
Prepaid pension asset
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,356
|
|
|
$
|
1,356
|
|
Accrued pension liability
|
|
$
|
90,491
|
|
|
$
|
48,100
|
|
|
$
|
138,591
|
|
|
$
|
61,566
|
|
|
$
|
200,157
|
|
Intangible asset
|
|
$
|
|
|
|
$
|
436
|
|
|
$
|
436
|
|
|
$
|
(436
|
)
|
|
$
|
|
|
Accumulated other comprehensive income, net of tax
|
|
$
|
|
|
|
$
|
(63,677
|
)
|
|
$
|
(63,677
|
)
|
|
$
|
(2,854
|
)
|
|
$
|
(66,531
|
)
|
Deferred tax asset
|
|
$
|
|
|
|
$
|
40,541
|
|
|
$
|
40,541
|
|
|
$
|
1,238
|
|
|
$
|
41,779
|
|
Prior to the spin off from Sara Lee on September 5, 2006,
employees who met certain eligibility requirements participated
in defined benefit pension plans sponsored by Sara Lee. These
defined benefit pension plans included employees from a number
of domestic Sara Lee business units. All obligations pursuant to
these plans have historically been obligations of Sara Lee and
as such, were not included on the Companys historical
Consolidated Balance Sheets, prior to September 5, 2006.
The annual cost of the Sara Lee defined benefit plans was
allocated to all of the participating businesses based upon a
specific actuarial computation which was followed consistently.
The annual (income) expense incurred by the Company for these
defined benefit plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Participation in Sara Lee sponsored defined benefit plans
|
|
$
|
|
|
|
$
|
725
|
|
|
$
|
30,835
|
|
|
$
|
46,675
|
|
Hanesbrands sponsored benefit plans
|
|
|
(2,924
|
)
|
|
|
2,182
|
|
|
|
|
|
|
|
|
|
Playtex Apparel, Inc. Pension Plan
|
|
|
(127
|
)
|
|
|
(30
|
)
|
|
|
(234
|
)
|
|
|
9
|
|
National Textiles L.L.C. Pension Plan
|
|
|
(339
|
)
|
|
|
(425
|
)
|
|
|
(1,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension plan (income) cost
|
|
$
|
(3,390
|
)
|
|
$
|
2,452
|
|
|
$
|
29,542
|
|
|
$
|
46,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
The components of net periodic benefit cost and other amounts
recognized in other comprehensive loss of the Companys
noncontributory defined benefit pension plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
1,446
|
|
|
$
|
384
|
|
|
$
|
|
|
|
$
|
1
|
|
Interest cost
|
|
|
49,494
|
|
|
|
17,848
|
|
|
|
5,291
|
|
|
|
1,274
|
|
Expected return on assets
|
|
|
(55,588
|
)
|
|
|
(17,011
|
)
|
|
|
(6,584
|
)
|
|
|
(1,510
|
)
|
Asset Allocation
|
|
|
(1,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement cost
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition asset
|
|
|
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
43
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
232
|
|
Net actuarial loss
|
|
|
2,737
|
|
|
|
605
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) cost
|
|
$
|
(3,390
|
)
|
|
$
|
1,727
|
|
|
$
|
(1,293
|
)
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
Net (gain) loss
|
|
$
|
(61,162
|
)
|
|
$
|
111,505
|
|
Prior service credit
|
|
|
|
|
|
|
(385
|
)
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive (income) loss
|
|
|
(61,162
|
)
|
|
|
111,120
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other
comprehensive (income) loss
|
|
$
|
(64,552
|
)
|
|
$
|
112,847
|
|
|
|
|
|
|
|
|
|
|
The estimated net loss and prior service cost for the defined
benefit pension plans that will be amortized from accumulated
other comprehensive loss into net periodic benefit cost over the
next year are $43 and $163, respectively.
F-41
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
The funded status of the Companys defined benefit pension
plans at the respective year ends was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Accumulated benefit obligation:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
885,531
|
|
|
$
|
113,305
|
|
Assumption of obligations
|
|
|
|
|
|
|
745,550
|
|
Service cost
|
|
|
1,445
|
|
|
|
378
|
|
Interest cost
|
|
|
49,494
|
|
|
|
16,781
|
|
Benefits paid
|
|
|
(53,576
|
)
|
|
|
(18,427
|
)
|
Plan curtailment
|
|
|
(428
|
)
|
|
|
|
|
Plan amendments
|
|
|
|
|
|
|
401
|
|
Adoption of SFAS 158
|
|
|
(1,485
|
)
|
|
|
|
|
Impact of exchange rate change
|
|
|
4,526
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(48,091
|
)
|
|
|
27,543
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
837,416
|
|
|
|
885,531
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
686,730
|
|
|
|
101,507
|
|
Assumption of assets
|
|
|
|
|
|
|
531,322
|
|
Actual return on plan assets
|
|
|
69,343
|
|
|
|
20,831
|
|
Separation of assets and liabilities from Sara Lee
|
|
|
73,833
|
|
|
|
|
|
Employer contributions
|
|
|
54,355
|
|
|
|
51,497
|
|
Benefits paid
|
|
|
(53,576
|
)
|
|
|
(18,427
|
)
|
Adoption of SFAS 158
|
|
|
(761
|
)
|
|
|
|
|
Impact of exchange rate change
|
|
|
4,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
834,214
|
|
|
|
686,730
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(3,202
|
)
|
|
$
|
(198,801
|
)
|
|
|
|
|
|
|
|
|
|
The total accumulated benefit obligation and the accumulated
benefit obligation and fair value of plan assets for the
Companys pension plans with accumulated benefit
obligations in excess of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Accumulated Benefit Obligation
|
|
$
|
837,416
|
|
|
$
|
885,531
|
|
Plans with Accumulated Benefit Obligation in excess of plan
assets
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation
|
|
$
|
139,363
|
|
|
$
|
863,820
|
|
Fair value of plan assets
|
|
|
103,818
|
|
|
|
615,563
|
|
F-42
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Amounts recognized in the Companys Consolidated Balance
Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Noncurrent assets
|
|
$
|
32,342
|
|
|
$
|
1,355
|
|
Current liabilities
|
|
|
(2,775
|
)
|
|
|
(2,441
|
)
|
Noncurrent liabilities
|
|
|
(32,769
|
)
|
|
|
(197,715
|
)
|
Accumulated other comprehensive loss
|
|
|
(44,358
|
)
|
|
|
(108,310
|
)
|
Amounts recognized in accumulated other comprehensive loss
consist of:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Prior service cost
|
|
$
|
(332
|
)
|
|
$
|
(385
|
)
|
Actuarial loss
|
|
|
(44,026
|
)
|
|
|
(107,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(44,358
|
)
|
|
$
|
(108,310
|
)
|
|
|
|
|
|
|
|
|
|
Accrued benefit costs related to the Companys defined
benefit pension plans are reported in the Other noncurrent
assets, Accrued liabilities Payroll and
employee benefits and Pension and postretirement
benefits lines of the Consolidated Balance Sheets.
|
|
(a)
|
Measurement
Date and Assumptions
|
In accordance with the adoption of SFAS 158 part (b), a
December 29, 2007 measurement date was used to value plan
assets and obligations for the Companys defined benefit
pension plans for the year ended December 29, 2007. The
impact of adopting part (b) is an adjustment of $1,058 to
increase retained earnings, with offsetting decreases to pension
liability of $1,804 and accumulated other comprehensive income
of $747 for the year ended December 29, 2007. A measurement
date of September 30 was used for the six months ended
December 30, 2006, and a March 31 measurement date for all
previous periods. The weighted average actuarial assumptions
used in measuring the net periodic benefit cost and plan
obligations for the periods presented were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.80
|
%
|
|
|
5.77
|
%
|
|
|
5.60
|
%
|
|
|
5.50
|
%
|
Long-term rate of return on plan assets
|
|
|
8.03
|
|
|
|
7.57
|
|
|
|
7.76
|
|
|
|
7.83
|
|
Rate of compensation increase(1)
|
|
|
3.63
|
|
|
|
3.60
|
|
|
|
4.00
|
|
|
|
4.50
|
|
Plan obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.34
|
%
|
|
|
5.77
|
%
|
|
|
5.80
|
%
|
|
|
5.60
|
%
|
Rate of compensation increase(1)
|
|
|
3.63
|
|
|
|
3.60
|
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
|
(1) |
|
The compensation increase assumption applies to the non domestic
plans and portions of the Hanesbrands nonqualified retirement
plans, as benefits under these plans are not frozen at
December 29, 2007, December 30, 2006, and July 1,
2006. |
F-43
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
(b)
|
Plan
Assets, Expected Benefit Payments, and Funding
|
The allocation of pension plan assets as of the respective
period end measurement dates is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Asset category:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
65
|
%
|
|
|
63
|
%
|
Debt securities
|
|
|
29
|
|
|
|
32
|
|
Cash and other
|
|
|
6
|
|
|
|
5
|
|
The investment objectives for the pension plan assets are
designed to generate returns that will enable the pension plans
to meet their future obligations.
Due to the current funded status of the plans, the Company is
not required to make any contributions to the pension plans in
2008. Expected benefit payments are as follows: $52,233 in 2008,
$50,837 in 2009, $50,090 in 2010, $49,643 in 2011, $51,297 in
2012 and $272,227 thereafter.
|
|
(16)
|
Postretirement
Healthcare and Life Insurance Plans
|
In December 2006, the Company changed the postretirement plan
benefits to (a) pass along a higher share of retiree
medical costs to all retirees effective February 1, 2007,
(b) eliminate company contributions toward premiums for
retiree medical coverage effective December 1, 2007,
(c) eliminate retiree medical coverage options for all
current and future retirees age 65 and older and
(d) eliminate future postretirement life benefits. Gains
associated with these plan amendments were amortized throughout
the year ended December 29, 2007 in anticipation of the
effective termination of the medical plan on December 1,
2007. On December 1, 2007 the Company effectively
terminated all retiree medical coverage. Postretirement benefit
income of $28,467 was recorded in the Consolidated Statement of
Income for the six months ended December 30, 2006, which
represented the unrecognized amounts associated with prior plan
amendments that were being amortized into income over the
remaining service period of the participants prior to the
December 2006 amendments. A gain on curtailment of $32,144 is
recorded in the Consolidated Statement of Income for the year
ended December 29, 2007, which represents the final
settlement of the retirement plan.
On September 29, 2006, SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans was issued. The objectives of
SFAS 158 are for an employer to a) recognize the
overfunded status of a plan as an asset and the underfunded
status of a plan as a liability in the balance sheet and to
recognize changes in the funded status in comprehensive income
or loss, and b) measure the funded status of a plan as of
the date of its balance sheet date. Additional minimum pension
liabilities and related intangible assets are also derecognized
upon adoption of the new standard. SFAS 158 requires
initial application of the requirement to recognize the funded
status of a benefit plan and the related disclosure provisions
as of the end of fiscal years ending after December 15,
2006. SFAS 158 requires initial application of the
requirement to measure plan assets and benefit obligations as of
the balance sheet date as of the end of fiscal years ending
after December 15, 2008. The Company adopted part
(a) of the statement as of
F-44
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
December 30, 2006. The Company adopted part (b) of the
statement as of December 29, 2007. The following table
summarizes the effect of the adoption of part (a) of
SFAS 158 on the December 30, 2006 balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS 158
|
|
|
|
|
|
|
Pre-SFAS 158
|
|
|
Adjustment
|
|
|
Post SFAS 158
|
|
|
Accrued Postretirement Liability
|
|
$
|
44,358
|
|
|
$
|
(35,897
|
)
|
|
$
|
8,461
|
|
Accumulated Other Comprehensive Income, net of tax
|
|
$
|
|
|
|
$
|
21,933
|
|
|
$
|
21,933
|
|
Deferred Tax Liability
|
|
$
|
|
|
|
$
|
13,964
|
|
|
$
|
13,964
|
|
Prior to the spin off from Sara Lee on September 5, 2006,
employees who met certain eligibility requirements participated
in post-retirement healthcare and life insurance sponsored by
Sara Lee. These plans included employees from a number of
domestic Sara Lee business units. All obligations pursuant to
these plans have historically been obligations of Sara Lee and
as such, were not included on the Companys historical
Consolidated Balance Sheets, prior to September 5, 2006.
The annual cost of the Sara Lee defined benefit plans was
allocated to all of the participating businesses based upon a
specific actuarial computation which was followed consistently.
In connection with the spin off on September 5, 2006, the
Company assumed Sara Lees obligations under the Sara Lee
postretirement plans related to the Companys current and
former employees.
The postretirement plan expense incurred by the Company for
these postretirement plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Hanesbrands postretirement health care and life insurance plans
|
|
$
|
(5,410
|
)
|
|
$
|
237
|
|
|
$
|
|
|
|
$
|
|
|
Participation in Sara Lee sponsored postretirement and life
insurance plans
|
|
|
|
|
|
|
214
|
|
|
|
6,188
|
|
|
|
7,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,410
|
)
|
|
$
|
451
|
|
|
$
|
6,188
|
|
|
$
|
7,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
The components of the Companys postretirement health-care
and life insurance plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Service costs
|
|
$
|
256
|
|
|
$
|
470
|
|
Interest cost
|
|
|
835
|
|
|
|
967
|
|
Expected return on assets
|
|
|
(7
|
)
|
|
|
(2
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
Transition asset
|
|
|
(62
|
)
|
|
|
64
|
|
Prior service cost
|
|
|
(7,380
|
)
|
|
|
(1,456
|
)
|
Net actuarial loss
|
|
|
948
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) cost
|
|
$
|
(5,410
|
)
|
|
$
|
237
|
|
|
|
|
|
|
|
|
|
|
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income
|
|
|
|
|
|
|
|
|
Net (gain) loss
|
|
$
|
(191
|
)
|
|
$
|
10,206
|
|
Transition asset
|
|
|
|
|
|
|
(79
|
)
|
Prior service credit
|
|
|
|
|
|
|
(46,024
|
)
|
Recognition of settlement of health-care plan
|
|
|
(32,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized gain in other comprehensive income
|
|
|
(32,335
|
)
|
|
|
(35,897
|
)
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other
comprehensive loss
|
|
$
|
(37,745
|
)
|
|
$
|
(35,660
|
)
|
|
|
|
|
|
|
|
|
|
F-46
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
The funded status of the Companys postretirement
health-care and life insurance plans at the respective year end
was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
December 30, 2006
|
|
|
Accumulated benefit obligation:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
8,647
|
|
|
$
|
50,793
|
|
Service cost
|
|
|
256
|
|
|
|
470
|
|
Interest cost
|
|
|
836
|
|
|
|
967
|
|
Benefits paid
|
|
|
(2,261
|
)
|
|
|
(1,824
|
)
|
Plan curtailments
|
|
|
|
|
|
|
(2,127
|
)
|
Plan amendments
|
|
|
|
|
|
|
(40,920
|
)
|
Actuarial (gain) loss
|
|
|
(903
|
)
|
|
|
1,288
|
|
SFAS 158 Adjustment
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
6,598
|
|
|
|
8,647
|
|
Fair value of plan assets:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
186
|
|
|
|
184
|
|
Actual return on plan assets
|
|
|
13
|
|
|
|
2
|
|
Employer contributions
|
|
|
2,261
|
|
|
|
1,824
|
|
Benefits paid
|
|
|
(2,261
|
)
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
173
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
Funded status and accrued benefit cost recognized
|
|
$
|
(6,425
|
)
|
|
$
|
(8,461
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Companys Consolidated Balance
Sheet consist of:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(351
|
)
|
|
$
|
(2,426
|
)
|
Noncurrent liabilities
|
|
|
(6,074
|
)
|
|
|
(6,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,425
|
)
|
|
$
|
(8,461
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income
consist of:
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
|
|
|
|
|
46,024
|
|
Initial net asset
|
|
|
|
|
|
|
79
|
|
Actuarial gain (loss)
|
|
|
191
|
|
|
|
(10,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
191
|
|
|
$
|
35,897
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit costs related to the Companys
postretirement healthcare and life insurance plans are reported
in the Accrued liabilities Payroll and
employee benefits and Pension and postretirement
benefits lines of the Consolidated Balance Sheets.
|
|
(a)
|
Measurement
Date and Assumptions
|
In accordance with the adoption of SFAS 158 part (b), a
December 29, 2007 measurement date was used to value plan
assets and obligations for the Companys postretirement
life insurance plans in the current year. The impact of adopting
part (b) is an adjustment of $131 to increase retained
earnings, with an offsetting
F-47
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
decrease to postretirement liability at December 29, 2007.
A September 30, 2006 measurement date was used to value
plan assets and obligations for the Companys
postretirement medical and life insurance plans for the previous
year. The weighted average actuarial assumptions used in
measuring the net periodic benefit cost and plan obligations for
the plan at the measurement date were as follows: discount rate
of 6.20% for plan obligations and net periodic benefit cost; and
long term rate of return on plan assets of 3.70%.
|
|
(b)
|
Contributions
and Benefit Payments
|
The Company expects to make a contribution of $525 in 2008.
Expected benefit payments are as follows: $525 in 2008, $521 in
2009, $519 in 2010, $517 in 2011, $513 in 2012 and $2,498
thereafter.
The provision for income tax computed by applying the
U.S. statutory rate to income before taxes as reconciled to
the actual provisions were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Income before income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
6.0
|
%
|
|
|
30.4
|
%
|
|
|
23.4
|
%
|
|
|
(35.5
|
)%
|
Foreign
|
|
|
94.0
|
|
|
|
69.6
|
|
|
|
76.6
|
|
|
|
135.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense at U.S. statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Tax on remittance of foreign earnings
|
|
|
8.9
|
|
|
|
8.1
|
|
|
|
3.3
|
|
|
|
14.5
|
|
Finalization of tax reviews and audits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.8
|
)
|
Foreign taxes less than U.S. statutory rate
|
|
|
(15.3
|
)
|
|
|
(11.6
|
)
|
|
|
(8.3
|
)
|
|
|
(7.7
|
)
|
Taxes related to earnings previously deemed permanently invested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.1
|
|
Benefit of Puerto Rico foreign tax credits
|
|
|
|
|
|
|
|
|
|
|
(4.5
|
)
|
|
|
(7.3
|
)
|
Other, net
|
|
|
2.9
|
|
|
|
2.3
|
|
|
|
(3.0
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes at effective worldwide tax rates
|
|
|
31.5
|
%
|
|
|
33.8
|
%
|
|
|
22.5
|
%
|
|
|
36.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Current and deferred tax provisions (benefits) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Year ended December 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
452
|
|
|
$
|
22,327
|
|
|
$
|
22,779
|
|
Foreign
|
|
|
23,471
|
|
|
|
4,780
|
|
|
|
28,251
|
|
State
|
|
|
6,007
|
|
|
|
962
|
|
|
|
6,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,930
|
|
|
$
|
28,069
|
|
|
$
|
57,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended December 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
17,918
|
|
|
$
|
5,848
|
|
|
$
|
23,766
|
|
Foreign
|
|
|
14,711
|
|
|
|
(3,511
|
)
|
|
|
11,200
|
|
State
|
|
|
1,667
|
|
|
|
1,148
|
|
|
|
2,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,296
|
|
|
$
|
3,485
|
|
|
$
|
37,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
119,598
|
|
|
$
|
(27,103
|
)
|
|
$
|
92,495
|
|
Foreign
|
|
|
18,069
|
|
|
|
(1,911
|
)
|
|
|
16,158
|
|
State
|
|
|
2,964
|
|
|
|
(17,790
|
)
|
|
|
(14,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,631
|
|
|
$
|
(46,804
|
)
|
|
$
|
93,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 2, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
28,332
|
|
|
$
|
74,780
|
|
|
$
|
103,112
|
|
Foreign
|
|
|
30,655
|
|
|
|
(8,070
|
)
|
|
|
22,585
|
|
State
|
|
|
1,310
|
|
|
|
|
|
|
|
1,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,297
|
|
|
$
|
66,710
|
|
|
$
|
127,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Six Months Ended
|
|
Years Ended
|
|
|
December 29,
|
|
December 30,
|
|
July 1,
|
|
July 2,
|
|
|
2007
|
|
2006
|
|
2006
|
|
2005
|
|
Cash payments for income taxes
|
|
$
|
20,562
|
|
|
$
|
18,687
|
|
|
$
|
14,035
|
|
|
$
|
16,099
|
|
Cash payments above represent cash tax payments made by the
Company primarily in foreign jurisdictions. During the periods
presented prior to September 5, 2006, tax payments made in
the U.S. were made by Sara Lee on the Companys behalf
and were settled in the funding payable with parent companies
account.
F-49
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
The deferred tax assets and liabilities at the respective
year-ends were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Nondeductible reserves
|
|
$
|
9,884
|
|
|
$
|
11,598
|
|
Inventory
|
|
|
84,916
|
|
|
|
77,750
|
|
Property and equipment
|
|
|
5,710
|
|
|
|
11,807
|
|
Intangibles
|
|
|
165,792
|
|
|
|
161,690
|
|
Bad debt allowance
|
|
|
13,937
|
|
|
|
14,350
|
|
Accrued expenses
|
|
|
41,735
|
|
|
|
63,640
|
|
Employee benefits
|
|
|
88,568
|
|
|
|
90,180
|
|
Tax credits
|
|
|
9,309
|
|
|
|
|
|
Net operating loss and other tax carryforwards
|
|
|
13,137
|
|
|
|
42,579
|
|
Other
|
|
|
16,470
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
449,458
|
|
|
|
473,667
|
|
Less valuation allowances
|
|
|
(15,992
|
)
|
|
|
(14,591
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
433,466
|
|
|
|
459,076
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaids
|
|
|
8,188
|
|
|
|
3,971
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
8,188
|
|
|
|
3,971
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
425,278
|
|
|
$
|
455,105
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance for deferred tax assets as of
December 29, 2007 and December 30, 2006 was $15,992
and $14,591 respectively. The net change in the total valuation
allowance for the year ended December 29, 2007 and the six
months ended December 30, 2006 was $1,401 and $(32,536)
respectively.
The valuation allowance relates in part to deferred tax assets
established under SFAS No. 109 for loss carryforwards
at December 29, 2007 and December 30, 2006 of $13,137
and $11,736 respectively, and to foreign goodwill of $2,855 at
December 29, 2007 and December 30, 2006.
Within 180 days after Sara Lee files its final consolidated
tax return for the period that includes September 5, 2006,
Sara Lee is required to deliver to the Company a computation of
the amount of deferred taxes attributable to the Companys
United States and Canadian operations that would be included on
the Companys balance sheet as of September 6, 2006.
If substituting the amount of deferred taxes as finally
determined for the amount of estimated deferred taxes that were
included on that balance sheet at the time of the spin off
causes a decrease in the net book value reflected on that
balance sheet, then Sara Lee will be required to pay the Company
the amount of such decrease. If such substitution causes an
increase in the net book value reflected on that balance sheet,
then the Company will be required to pay Sara Lee the amount of
such increase. For purposes of this computation, the
Companys deferred taxes are the amount of deferred tax
benefits (including deferred tax consequences attributable to
deductible temporary differences and carryforwards) that would
be recognized as assets on the Companys balance sheet
computed in accordance with GAAP, but without regard to
valuation allowances, less the amount of deferred tax
liabilities (including deferred tax consequences attributable to
deductible temporary differences) that would be recognized as
liabilities on the Companys balance sheet computed in
accordance with GAAP, but
F-50
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
without regard to valuation allowances. Neither the Company nor
Sara Lee will be required to make any other payments to the
other with respect to deferred taxes.
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. Based upon
the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely
than not the Company will realize the benefits of these
deductible differences, net of the existing valuation allowances.
At December 29, 2007, the Company has net operating loss
carryforwards of approximately $55,833 which will expire as
follows:
|
|
|
|
|
Years Ending:
|
|
|
|
|
January 3, 2009
|
|
$
|
637
|
|
January 2, 2010
|
|
|
1,309
|
|
January 1, 2011
|
|
|
2,665
|
|
December 31, 2011
|
|
|
3,149
|
|
December 29, 2012
|
|
|
3,602
|
|
Thereafter
|
|
|
44,471
|
|
At December 29, 2007, applicable U.S. federal income
taxes and foreign withholding taxes have not been provided on
the accumulated earnings of foreign subsidiaries that are
expected to be permanently reinvested. If these earnings had not
been permanently reinvested, deferred taxes of approximately
$87,000 would have been recognized in the Consolidated Financial
Statements.
As discussed in Note 2, the Company adopted FIN 48 in
the year ended December 29, 2007. As a result of the
implementation of FIN 48, the Company recognized no
adjustment in the liability for unrecognized income tax benefits
as of the beginning of 2007. Although it is not reasonably
possible to estimate the amount by which these unrecognized tax
benefits may increase or decrease within the next twelve months
due to uncertainties regarding the timing of examinations and
the amount of settlements that may be paid, if any, to tax
authorities, the Company does not expect unrecognized tax
benefits to significantly change in the next twelve months. A
reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
Balance at December 30, 2006
|
|
$
|
3,267
|
|
Additions based on tax positions related to the current year
|
|
|
10,350
|
|
Additions for tax positions of prior years
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2007
|
|
$
|
13,617
|
|
|
|
|
|
|
The Companys policy is to recognize interest
and/or
penalties related to income tax matters in income tax expense.
During the year ended December 29, 2007, the Company
recognized $720 for interest and penalties classified as income
tax expense in the Consolidated Statement of Income.
F-51
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
In addition, a $248,118 valuation allowance existed for capital
losses resulting from the sale of U.S. apparel capital
assets in 2001 and 2003. Of these capital losses $224,969
expired unused at July 1, 2006. During the six months ended
December 30, 2006, deferred tax assets and the related
valuation allowance were reduced by $23,149 for the remaining
capital losses and $9,387 in foreign net operating losses
retained by Sara Lee.
The Company recognized a $50,000 tax charge related to the
repatriation of the earnings of foreign subsidiaries to the
U.S. in 2005. In addition, during 2005 the Company
recognized a $31,600 tax charge for extraordinary dividends
associated with the American Jobs Creation Act of 2004 (Act). On
October 22, 2004, the President of the United States signed
the Act which created a temporary incentive for
U.S. corporations to repatriate accumulated income earned
abroad by providing an 85% dividends received deduction for
certain dividends from controlled foreign corporations.
|
|
(18)
|
Stockholders
Equity
|
The Company is authorized to issue up to 500,000 shares of
common stock, par value $0.01 per share, and up to
50,000 shares of preferred stock, par value $0.01 per
share, and permits the Companys board of directors,
without stockholder approval, to increase or decrease the
aggregate number of shares of stock or the number of shares of
stock of any class or series that the Company is authorized to
issue. At December 29, 2007 and December 30, 2006,
95,232 and 96,312 shares, respectively, of common stock
were issued and outstanding and no shares of preferred stock
were issued or outstanding. Included within the
50,000 shares of preferred stock, 500 shares are
designated Junior Participating Preferred Stock, Series A
(the Series A Preferred Stock) and reserved for
issuance upon the exercise of rights under the rights agreement
described below.
Preferred
Stock Purchase Rights
Pursuant to a stockholder rights agreement entered into by the
Company prior to the spin off, one preferred stock purchase
right will be distributed with and attached to each share of the
Companys common stock. Each right will entitle its holder,
under the circumstances described below, to purchase from the
Company one one-thousandth of a share of the Series A
Preferred Stock at an exercise price of $75 per right.
Initially, the rights will be associated with the Companys
common stock, and will be transferable with and only with the
transfer of the underlying share of common stock. Until a right
is exercised, its holder, as such, will have no rights as a
stockholder with respect to such rights, including, without
limitation, the right to vote or to receive dividends.
The rights will become exercisable and separately certificated
only upon the rights distribution date, which will occur upon
the earlier of: (i) ten days following a public
announcement by the Company that a person or group (an
acquiring person) has acquired, or obtained the
right to acquire, beneficial ownership of 15% or more of its
outstanding shares of common stock (the date of the announcement
being the stock acquisition date); or (ii) ten
business days (or later if so determined by our board of
directors) following the commencement of or public disclosure of
an intention to commence a tender offer or exchange offer by a
person if, after acquiring the maximum number of securities
sought pursuant to such offer, such person, or any affiliate or
associate of such person, would acquire, or obtain the right to
acquire, beneficial ownership of 15% or more of our outstanding
shares of the Companys common stock.
F-52
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
Upon the Companys public announcement that a person or
group has become an acquiring person, each holder of a right
(other than any acquiring person and certain related parties,
whose rights will have automatically become null and void) will
have the right to receive, upon exercise, common stock with a
value equal to two times the exercise price of the right. In the
event of certain business combinations, each holder of a right
(except rights which previously have been voided as described
above) will have the right to receive, upon exercise, common
stock of the acquiring company having a value equal to two times
the exercise price of the right.
The Company may redeem the rights in whole, but not in part, at
a price of $0.001 per right (subject to adjustment and payable
in cash, common stock or other consideration deemed appropriate
by the board of directors) at any time prior to the earlier of
the stock acquisition date and the rights expiration date.
Immediately upon the action of the board of directors
authorizing any redemption, the rights will terminate and the
holders of rights will only be entitled to receive the
redemption price. At any time after a person becomes an
acquiring person and prior to the earlier of (i) the time
any person, together with all affiliates and associates, becomes
the beneficial owner of 50% or more of the Companys
outstanding common stock and (ii) the occurrence of a
business combination, the board of directors may cause the
Company to exchange for all or part of the then-outstanding and
exercisable rights shares of its common stock at an exchange
ratio of one common share per right, adjusted to reflect any
stock split, stock dividend or similar transaction.
|
|
(19)
|
Relationship
with Sara Lee and Related Entities
|
Effective upon the completion of the spin off on
September 5, 2006, Sara Lee ceased to be a related party to
the Company. The Company paid a dividend to Sara Lee of
$1,950,000 and repaid a loan in the amount of $450,000 which is
reflected in the Consolidated Statement of Stockholders
Equity. An additional payment of approximately $26,306 was paid
to Sara Lee during the six months ended December 30, 2006
in order to satisfy all outstanding payables from the Company to
Sara Lee and Sara Lee subsidiaries.
Prior to the spin off on September 5, 2006, the Company
participated in a number of Sara Lee administered programs such
as cash funding systems, insurance programs, employee benefit
programs and workers compensation programs. In connection
with the spin off from Sara Lee, the Company assumed $299,000 in
unfunded employee benefit liabilities for pension,
postretirement and other retirement benefit qualified and
nonqualified plans, and $37,554 of liabilities in connection
with property insurance, workers compensation, and other
programs.
Included in the historical information are costs of certain
services such as business insurance, medical insurance, and
employee benefit plans and allocations for certain centralized
administration costs for treasury, real estate, accounting,
auditing, tax, risk management, human resources and benefits
administration. Centralized administration costs were allocated
to the Company based upon a proportional cost allocation method.
These allocated costs are included in the Selling, general
and administrative expenses line of the Consolidated
Statement of Income. For the year ended December 29, 2007
and six months ended December 30, 2006, the total amount
allocated for centralized administration costs by Sara Lee was
$0.
In connection with the spin off, the Company entered into the
following agreements with Sara Lee:
|
|
|
|
|
Master Separation Agreement. This agreement
governs the contribution of Sara Lees branded apparel
Americas/Asia business to the Company, the subsequent
distribution of shares of Hanesbrands common stock to Sara
Lee stockholders and other matters related to Sara Lees
relationship with the Company. To effect the contribution, Sara
Lee agreed to transfer all of the assets of the branded apparel
Americas/Asia business to the Company and the Company agreed to
assume, perform and fulfill all of the
|
F-53
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
liabilities of the branded apparel Americas/Asia division in
accordance with their respective terms, except for certain
liabilities to be retained by Sara Lee.
|
|
|
|
|
|
Tax Sharing Agreement. This agreement governs
the allocation of U.S. federal, state, local, and foreign
tax liability between the Company and Sara Lee, provides for
restrictions and indemnities in connection with the tax
treatment of the distribution, and addresses other tax-related
matters. This agreement also provides that the Company is liable
for taxes incurred by Sara Lee that arise as a result of the
Company taking or failing to take certain actions that result in
the distribution failing to meet the requirements of a tax-free
distribution under Sections 355 and 368(a)(1)(D) of the
Internal Revenue Code. The Company therefore has generally
agreed that, among other things, it will not take any actions
that would result in any tax being imposed on the spin off.
|
|
|
|
Employee Matters Agreement. This agreement
allocates responsibility for employee benefit matters on the
date of and after the spin off, including the treatment of
existing welfare benefit plans, savings plans, equity-based
plans and deferred compensation plans as well as the
Companys establishment of new plans.
|
|
|
|
Master Transition Services Agreement. Under
this agreement, the Company and Sara Lee agreed to provide each
other, for varying periods of time, with specified support
services related to among others, human resources and financial
shared services, tax-shared services and information technology
services. Each of these services is provided for a fee, which
differs depending upon the service.
|
|
|
|
Real Estate Matters Agreement. This agreement
governs the manner in which Sara Lee will transfer to or share
with the Company various leased and owned properties associated
with the branded apparel business.
|
|
|
|
Indemnification and Insurance Matters
Agreement. This agreement provides general
indemnification provisions pursuant to which the Company and
Sara Lee have agreed to indemnify each other and their
respective affiliates, agents, successors and assigns from
certain liabilities. This agreement also contains provisions
governing the recovery by and payment to the Company of
insurance proceeds related to its business and arising on or
prior to the date of the distribution and its insurance coverage.
|
|
|
|
Intellectual Property Matters Agreement. This
agreement provides for the license by Sara Lee to the Company of
certain software, and governs the wind-down of the
Companys use of certain of Sara Lees trademarks
(other than those being transferred to the Company in connection
with the spin off).
|
The following is a discussion of the relationship with Sara Lee,
the services provided and how they have been accounted for in
the Companys financial statements.
|
|
(a)
|
Allocation
of Corporate Costs
|
The costs of certain services that were provided by Sara Lee to
the Company during the periods presented have been reflected in
these financial statements, including charges for services such
as business insurance, medical insurance and employee benefit
plans and allocations for certain centralized administration
costs for treasury, real estate, accounting, auditing, tax, risk
management, human resources and benefits administration. These
allocations of centralized administration costs were determined
using a proportional cost allocation method on bases that the
Company and Sara Lee considered to be reasonable, including
relevant operating profit, fixed assets, sales, and payroll.
Allocated costs are included in the Selling, general and
administrative expenses line of the Consolidated
Statements of Income. The total amount allocated for centralized
administration costs by Sara Lee in the year ended
December 29, 2007, six months ended December 30, 2006
F-54
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
and the years ended July 1, 2006 and July 2, 2005 was
$0, $0, $37,478 and $34,213, respectively. Beginning with the
six months ended December 30, 2006, there were no costs
allocated as the Companys infrastructure was in place and
did not significantly benefit from these services from Sara Lee.
These costs represent managements reasonable allocation of
the costs incurred. However, these amounts may not be
representative of the costs necessary for the Company to operate
as a separate standalone company. The Net transactions
with parent companies line item in the Consolidated
Statements of Parent Companies Equity primarily reflects
dividends paid to parent companies and costs paid by Sara Lee on
behalf of the Company.
|
|
(b)
|
Other
Transactions with Sara Lee Related Entities
|
During all periods presented prior to the spin off on
September 5, 2006, the Companys entities engaged in
certain transactions with other Sara Lee businesses that are not
part of the Company, which included the purchase and sale of
certain inventory, the exchange of services, and royalty
arrangements involving the use of trademarks or other
intangibles.
Transactions with related entities are summarized in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Sales to related entities
|
|
$
|
5
|
|
|
$
|
1,630
|
|
|
$
|
1,999
|
|
Net royalty income
|
|
|
2,026
|
|
|
|
1,554
|
|
|
|
3,152
|
|
Net service expense
|
|
|
7
|
|
|
|
4,449
|
|
|
|
8,915
|
|
Interest expense
|
|
|
7,878
|
|
|
|
23,036
|
|
|
|
30,759
|
|
Interest income
|
|
|
4,926
|
|
|
|
5,807
|
|
|
|
16,275
|
|
Interest income and expense with related entities are reported
in the Interest expense, net line of the
Consolidated Statements of Income. The remaining balances
included in this line represent interest with third parties.
|
|
(20)
|
Business
Segment Information
|
The Companys operations are managed and reported in five
operating segments, each of which is a reportable segment for
financial reporting purposes: Innerwear, Outerwear, Hosiery,
International and Other. These segments are organized
principally by product category and geographic location.
Management of each segment is responsible for the operations of
these businesses.
The types of products and services from which each reportable
segment derives its revenues are as follows:
|
|
|
|
|
Innerwear sells basic branded products that are replenishment in
nature under the product categories of womens intimate
apparel, mens underwear, kids underwear, socks,
thermals and sleepwear.
|
|
|
|
Outerwear sells basic branded products that are seasonal in
nature under the product categories of casualwear and activewear.
|
|
|
|
Hosiery sells products in categories such as panty hose and knee
highs.
|
|
|
|
International relates to the Latin America, Asia, Canada and
Europe geographic locations which sell products that span across
the Innerwear, Outerwear and Hosiery reportable segments.
|
F-55
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
Other is comprised of sales of non finished products such as
fabric and certain other materials in the United States and
Latin America in order to maintain asset utilization at certain
manufacturing facilities.
|
The Company evaluates the operating performance of its segments
based upon segment operating profit, which is defined as
operating profit before general corporate expenses, amortization
of trademarks and other identifiable intangibles and
restructuring and related accelerated depreciation charges. The
accounting policies of the segments are consistent with those
described in Note 2, Summary of Significant
Accounting Policies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Net sales(1)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
2,556,906
|
|
|
$
|
1,295,868
|
|
|
$
|
2,627,101
|
|
|
$
|
2,703,637
|
|
Outerwear
|
|
|
1,221,845
|
|
|
|
616,298
|
|
|
|
1,140,703
|
|
|
|
1,198,286
|
|
Hosiery
|
|
|
266,198
|
|
|
|
144,066
|
|
|
|
290,125
|
|
|
|
338,468
|
|
International
|
|
|
421,898
|
|
|
|
197,729
|
|
|
|
398,157
|
|
|
|
399,989
|
|
Other
|
|
|
56,920
|
|
|
|
19,381
|
|
|
|
62,809
|
|
|
|
88,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
4,523,767
|
|
|
|
2,273,342
|
|
|
|
4,518,895
|
|
|
|
4,729,239
|
|
Intersegment
|
|
|
(49,230
|
)
|
|
|
(22,869
|
)
|
|
|
(46,063
|
)
|
|
|
(45,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
4,474,537
|
|
|
$
|
2,250,473
|
|
|
$
|
4,472,832
|
|
|
$
|
4,683,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
305,959
|
|
|
$
|
172,008
|
|
|
$
|
344,643
|
|
|
$
|
300,796
|
|
Outerwear
|
|
|
71,364
|
|
|
|
21,316
|
|
|
|
74,170
|
|
|
|
68,301
|
|
Hosiery
|
|
|
76,917
|
|
|
|
36,205
|
|
|
|
39,069
|
|
|
|
40,776
|
|
International
|
|
|
53,147
|
|
|
|
15,236
|
|
|
|
37,003
|
|
|
|
32,231
|
|
Other
|
|
|
(1,361
|
)
|
|
|
(288
|
)
|
|
|
127
|
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
506,026
|
|
|
|
244,477
|
|
|
|
495,012
|
|
|
|
441,930
|
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(60,213
|
)
|
|
|
(46,927
|
)
|
|
|
(52,482
|
)
|
|
|
(21,823
|
)
|
Amortization of trademarks and other identifiable intangibles
|
|
|
(6,205
|
)
|
|
|
(3,466
|
)
|
|
|
(9,031
|
)
|
|
|
(9,100
|
)
|
Gain on curtailment of postretirement benefits
|
|
|
32,144
|
|
|
|
28,467
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
(43,731
|
)
|
|
|
(11,278
|
)
|
|
|
101
|
|
|
|
(46,978
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
(36,912
|
)
|
|
|
(21,199
|
)
|
|
|
|
|
|
|
(4,549
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
(2,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
388,569
|
|
|
|
190,074
|
|
|
|
433,600
|
|
|
|
359,480
|
|
Other expenses
|
|
|
(5,235
|
)
|
|
|
(7,401
|
)
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(199,208
|
)
|
|
|
(70,753
|
)
|
|
|
(17,280
|
)
|
|
|
(13,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
184,126
|
|
|
$
|
111,920
|
|
|
$
|
416,320
|
|
|
$
|
345,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,567,674
|
|
|
$
|
1,354,183
|
|
Outerwear
|
|
|
910,656
|
|
|
|
761,653
|
|
Hosiery
|
|
|
135,233
|
|
|
|
110,400
|
|
International
|
|
|
237,860
|
|
|
|
222,561
|
|
Other
|
|
|
16,807
|
|
|
|
21,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,868,230
|
|
|
|
2,470,595
|
|
Corporate(3)
|
|
|
571,253
|
|
|
|
965,025
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,439,483
|
|
|
$
|
3,435,620
|
|
|
|
|
|
|
|
|
|
|
F-57
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Depreciation expense for fixed assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
40,119
|
|
|
$
|
20,945
|
|
|
$
|
52,815
|
|
|
$
|
61,336
|
|
Outerwear
|
|
|
19,516
|
|
|
|
10,417
|
|
|
|
22,525
|
|
|
|
18,727
|
|
Hosiery
|
|
|
8,829
|
|
|
|
4,960
|
|
|
|
12,645
|
|
|
|
11,356
|
|
International
|
|
|
4,364
|
|
|
|
1,529
|
|
|
|
2,783
|
|
|
|
3,123
|
|
Other
|
|
|
1,645
|
|
|
|
2,287
|
|
|
|
4,143
|
|
|
|
2,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,473
|
|
|
|
40,138
|
|
|
|
94,911
|
|
|
|
97,399
|
|
Corporate
|
|
|
50,998
|
|
|
|
29,808
|
|
|
|
10,262
|
|
|
|
11,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation expense for fixed assets
|
|
$
|
125,471
|
|
|
$
|
69,946
|
|
|
$
|
105,173
|
|
|
$
|
108,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Additions to long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
15,605
|
|
|
$
|
4,447
|
|
|
$
|
32,667
|
|
|
$
|
22,223
|
|
Outerwear
|
|
|
7,162
|
|
|
|
1,580
|
|
|
|
47,242
|
|
|
|
25,675
|
|
Hosiery
|
|
|
1,124
|
|
|
|
1,426
|
|
|
|
4,279
|
|
|
|
2,233
|
|
International
|
|
|
1,882
|
|
|
|
985
|
|
|
|
5,025
|
|
|
|
2,912
|
|
Other
|
|
|
693
|
|
|
|
189
|
|
|
|
659
|
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,466
|
|
|
|
8,627
|
|
|
|
89,872
|
|
|
|
53,408
|
|
Corporate
|
|
|
70,160
|
|
|
|
21,137
|
|
|
|
20,207
|
|
|
|
13,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions to long-lived assets
|
|
$
|
96,626
|
|
|
$
|
29,764
|
|
|
$
|
110,079
|
|
|
$
|
67,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes sales between segments. Such sales are at transfer
prices that are at cost plus markup or at prices equivalent to
market value. |
|
(2) |
|
Intersegment sales included in the segments net sales are
as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Innerwear
|
|
$
|
6,529
|
|
|
$
|
2,287
|
|
|
$
|
5,293
|
|
|
$
|
4,844
|
|
Outerwear
|
|
|
23,154
|
|
|
|
9,671
|
|
|
|
16,062
|
|
|
|
13,098
|
|
Hosiery
|
|
|
16,790
|
|
|
|
9,575
|
|
|
|
21,302
|
|
|
|
21,079
|
|
International
|
|
|
2,757
|
|
|
|
1,355
|
|
|
|
3,406
|
|
|
|
6,535
|
|
Other
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,230
|
|
|
$
|
22,869
|
|
|
$
|
46,063
|
|
|
$
|
45,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-58
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
(3) |
|
Principally cash and equivalents, certain fixed assets, net
deferred tax assets, goodwill, trademarks and other identifiable
intangibles, and certain other noncurrent assets. |
Sales to Wal-Mart, Target and Kohls were substantially in
the Innerwear and Outerwear segments and represented 27%, 14%
and 6% of total sales in the year ended December 29, 2007,
respectively.
Worldwide sales by product category for Innerwear, Outerwear,
Hosiery and Other were $2,842,365, $1,344,601, $279,881 and
$56,920, respectively, in the year ended December 29, 2007.
|
|
(21)
|
Geographic
Area Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended or at
|
|
|
Six Months Ended or at
|
|
|
Years Ended or at
|
|
|
|
December 29, 2007
|
|
|
December 30, 2006
|
|
|
July 1, 2006
|
|
|
July 2, 2005
|
|
|
|
|
|
|
Long-Lived
|
|
|
|
|
|
Long-Lived
|
|
|
|
|
|
Long-Lived
|
|
|
|
|
|
Long-Lived
|
|
|
|
Sales
|
|
|
Assets
|
|
|
Sales
|
|
|
Assets
|
|
|
Sales
|
|
|
Assets
|
|
|
Sales
|
|
|
Assets
|
|
|
United States
|
|
$
|
4,013,738
|
|
|
$
|
776,113
|
|
|
$
|
2,058,506
|
|
|
$
|
718,489
|
|
|
$
|
4,105,168
|
|
|
$
|
862,280
|
|
|
$
|
4,307,940
|
|
|
$
|
770,917
|
|
Mexico
|
|
|
73,427
|
|
|
|
12,844
|
|
|
|
38,920
|
|
|
|
19,194
|
|
|
|
77,516
|
|
|
|
35,376
|
|
|
|
79,352
|
|
|
|
42,897
|
|
Central America
|
|
|
26,851
|
|
|
|
163,542
|
|
|
|
23,793
|
|
|
|
104,420
|
|
|
|
3,185
|
|
|
|
49,166
|
|
|
|
4,511
|
|
|
|
98,168
|
|
Japan
|
|
|
83,606
|
|
|
|
1,116
|
|
|
|
43,707
|
|
|
|
16,302
|
|
|
|
85,898
|
|
|
|
4,979
|
|
|
|
91,337
|
|
|
|
6,202
|
|
Canada
|
|
|
124,500
|
|
|
|
8,902
|
|
|
|
57,898
|
|
|
|
6,008
|
|
|
|
118,798
|
|
|
|
6,828
|
|
|
|
113,782
|
|
|
|
7,496
|
|
Other
|
|
|
152,415
|
|
|
|
117,629
|
|
|
|
27,649
|
|
|
|
111,159
|
|
|
|
80,637
|
|
|
|
73,411
|
|
|
|
84,762
|
|
|
|
57,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,474,537
|
|
|
$
|
1,080,146
|
|
|
|
2,250,473
|
|
|
$
|
975,572
|
|
|
|
4,471,202
|
|
|
$
|
1,032,040
|
|
|
|
4,681,684
|
|
|
$
|
983,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,630
|
|
|
|
|
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,474,537
|
|
|
|
|
|
|
$
|
2,250,473
|
|
|
|
|
|
|
$
|
4,472,832
|
|
|
|
|
|
|
$
|
4,683,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net sales by geographic region is attributed by customer
location.
F-59
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
(22)
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
Year ended December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,039,894
|
|
|
$
|
1,121,907
|
|
|
$
|
1,153,606
|
|
|
$
|
1,159,130
|
|
|
$
|
4,474,537
|
|
Gross profit
|
|
|
339,679
|
|
|
|
380,357
|
|
|
|
361,019
|
|
|
|
359,855
|
|
|
|
1,440,910
|
|
Net income
|
|
|
12,004
|
|
|
|
25,434
|
|
|
|
38,896
|
|
|
|
49,793
|
|
|
|
126,127
|
|
Basic earnings per share
|
|
|
0.12
|
|
|
|
0.26
|
|
|
|
0.41
|
|
|
|
0.52
|
|
|
|
1.31
|
|
Diluted earnings per share
|
|
|
0.12
|
|
|
|
0.26
|
|
|
|
0.40
|
|
|
|
0.52
|
|
|
|
1.30
|
|
Six months ended December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,118,968
|
|
|
$
|
1,131,505
|
|
|
|
*
|
|
|
|
*
|
|
|
$
|
2,250,473
|
|
Gross profit
|
|
|
365,631
|
|
|
|
354,723
|
|
|
|
|
|
|
|
|
|
|
|
720,354
|
|
Net income
|
|
|
50,345
|
|
|
|
23,794
|
|
|
|
|
|
|
|
|
|
|
|
74,139
|
|
Basic earnings per share
|
|
|
0.52
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
0.77
|
|
Diluted earnings per share
|
|
|
0.52
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
0.77
|
|
Year ended July 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,137,960
|
|
|
$
|
1,181,878
|
|
|
$
|
1,032,861
|
|
|
$
|
1,120,133
|
|
|
$
|
4,472,832
|
|
Gross profit
|
|
|
369,518
|
|
|
|
393,460
|
|
|
|
340,893
|
|
|
|
381,461
|
|
|
|
1,485,332
|
|
Net income
|
|
|
82,603
|
|
|
|
106,012
|
|
|
|
74,593
|
|
|
|
59,285
|
|
|
|
322,493
|
|
Basic earnings per share
|
|
|
0.86
|
|
|
|
1.10
|
|
|
|
0.77
|
|
|
|
0.62
|
|
|
|
3.35
|
|
Diluted earnings per share
|
|
|
0.86
|
|
|
|
1.10
|
|
|
|
0.77
|
|
|
|
0.62
|
|
|
|
3.35
|
|
|
|
* |
The six months ended December 30, 2006 contains only first
and second quarter results as a result of changing the
Companys fiscal year end to the Saturday closest to
December 31.
|
The amounts above include the impact of restructuring and
curtailment as described in notes 5 and 16, respectively,
to the Consolidated Financial Statements.
|
|
(23)
|
Consolidating
Financial Information
|
In accordance with the indenture governing the Companys
$500,000 Floating Rate Senior Notes issued on December 14,
2006, certain of the Companys subsidiaries have guaranteed
the Companys obligations under the Floating Rate Senior
Notes. The following presents the condensed consolidating
financial information separately for:
(i) Parent Company, the issuer of the guaranteed
obligations. Parent Company includes Hanesbrands Inc. and its
100% owned operating divisions (divisional entities) which are
not legal entities, and excludes its subsidiaries which are
legal entities;
(ii) For period prior to the spin off from Sara Lee,
divisional entities, on a combined basis, representing operating
divisions (not legal entities) 100% owned by Sara Lee
Corporation (former parent company);
(iii) Guarantor subsidiaries, on a combined basis, as
specified in the indenture governing the Floating Rate Senior
Notes;
(iv) Non-guarantor subsidiaries, on a combined basis;
F-60
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
(v) Consolidating entries and eliminations representing
adjustments to (a) eliminate intercompany transactions
between or among Hanesbrands, the guarantor subsidiaries and the
non-guarantor subsidiaries, (b) eliminate intercompany
profit in inventory, (c) eliminate the investments in our
subsidiaries and (d) record consolidating entries; and
(vi) Parent Company, on a consolidated basis.
As described in Note 1, a separate legal entity did not
exist for Hanesbrands Inc. prior to the spin off from Sara Lee
because a direct ownership relationship did not exist among the
various units comprising the Branded Apparel Americas and Asia
Business. In connection with the spin off from Sara Lee, each
guarantor subsidiary became a 100% owned direct or indirect
subsidiary of Hanesbrands Inc. as of September 5, 2006.
Therefore, a parent company entity is not presented for periods
prior to the spin-off, but divisional entities of Sara Lee are
presented.
The Floating Rate Senior Notes are fully and unconditionally
guaranteed on a joint and several basis by each guarantor
subsidiary. Each entity in the consolidating financial
information follows the same accounting policies as described in
the consolidated financial statements, except for the use by the
Parent Company and guarantor subsidiaries of the equity method
of accounting to reflect ownership interests in subsidiaries
which are eliminated upon consolidation.
Certain prior period amounts have been reclassified to conform
to the current year presentation and legal entity structure
relating to the classification of the investment in subsidiary
balances and related equity in earnings of subsidiaries. Prior
period presentation has been revised to combine Parent and
Divisional Entities columns for periods after the spin off from
Sara Lee on September 5, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Statement of Income Year Ended
December 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidating
|
|
|
Net sales
|
|
$
|
4,421,464
|
|
|
$
|
875,358
|
|
|
$
|
2,532,886
|
|
|
$
|
(3,355,171
|
)
|
|
$
|
4,474,537
|
|
Cost of sales
|
|
|
3,527,794
|
|
|
|
640,341
|
|
|
|
2,240,203
|
|
|
|
(3,374,711
|
)
|
|
|
3,033,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
893,670
|
|
|
|
235,017
|
|
|
|
292,683
|
|
|
|
19,540
|
|
|
|
1,440,910
|
|
Selling, general and administrative expenses
|
|
|
923,127
|
|
|
|
4,096
|
|
|
|
112,332
|
|
|
|
1,199
|
|
|
|
1,040,754
|
|
Gain on curtailment of postretirement benefits
|
|
|
(32,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,144
|
)
|
Restructuring
|
|
|
39,625
|
|
|
|
72
|
|
|
|
4,034
|
|
|
|
|
|
|
|
43,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(36,938
|
)
|
|
|
230,849
|
|
|
|
176,317
|
|
|
|
18,341
|
|
|
|
388,569
|
|
Other expenses
|
|
|
5,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,235
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
339,034
|
|
|
|
137,571
|
|
|
|
|
|
|
|
(476,605
|
)
|
|
|
|
|
Interest expense, net
|
|
|
154,367
|
|
|
|
42,299
|
|
|
|
2,544
|
|
|
|
(2
|
)
|
|
|
199,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
142,494
|
|
|
|
326,121
|
|
|
|
173,773
|
|
|
|
(458,262
|
)
|
|
|
184,126
|
|
Income tax expense
|
|
|
16,367
|
|
|
|
13,380
|
|
|
|
28,252
|
|
|
|
|
|
|
|
57,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
126,127
|
|
|
$
|
312,741
|
|
|
$
|
145,521
|
|
|
$
|
(458,262
|
)
|
|
$
|
126,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-61
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Statement of Income Six Months Ended
December 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
2,239,788
|
|
|
$
|
298,380
|
|
|
$
|
1,197,146
|
|
|
$
|
(1,484,841
|
)
|
|
$
|
2,250,473
|
|
Cost of sales
|
|
|
1,583,683
|
|
|
|
412,274
|
|
|
|
1,042,006
|
|
|
|
(1,507,844
|
)
|
|
|
1,530,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
656,105
|
|
|
|
(113,894
|
)
|
|
|
155,140
|
|
|
|
23,003
|
|
|
|
720,354
|
|
Selling, general and administrative expenses
|
|
|
452,483
|
|
|
|
57,249
|
|
|
|
60,291
|
|
|
|
(22,554
|
)
|
|
|
547,469
|
|
Gain on curtailment of postretirement benefits
|
|
|
(28,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,467
|
)
|
Restructuring
|
|
|
2,970
|
|
|
|
2,036
|
|
|
|
6,272
|
|
|
|
|
|
|
|
11,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
229,119
|
|
|
|
(173,179
|
)
|
|
|
88,577
|
|
|
|
45,557
|
|
|
|
190,074
|
|
Other expenses
|
|
|
7,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,401
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
(62,193
|
)
|
|
|
87,559
|
|
|
|
|
|
|
|
(25,366
|
)
|
|
|
|
|
Interest expense, net
|
|
|
56,234
|
|
|
|
15,043
|
|
|
|
(524
|
)
|
|
|
|
|
|
|
70,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
103,291
|
|
|
|
(100,663
|
)
|
|
|
89,101
|
|
|
|
20,191
|
|
|
|
111,920
|
|
Income tax expense
|
|
|
29,152
|
|
|
|
3,113
|
|
|
|
5,516
|
|
|
|
|
|
|
|
37,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
74,139
|
|
|
$
|
(103,776
|
)
|
|
$
|
83,585
|
|
|
$
|
20,191
|
|
|
$
|
74,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Statement of Income Year Ended July 1,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Divisional
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
4,645,494
|
|
|
$
|
947,083
|
|
|
$
|
2,453,589
|
|
|
$
|
(3,573,334
|
)
|
|
$
|
4,472,832
|
|
Cost of sales
|
|
|
3,687,964
|
|
|
|
791,992
|
|
|
|
2,075,249
|
|
|
|
(3,567,705
|
)
|
|
|
2,987,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
957,530
|
|
|
|
155,091
|
|
|
|
378,340
|
|
|
|
(5,629
|
)
|
|
|
1,485,332
|
|
Selling, general and administrative expenses
|
|
|
774,972
|
|
|
|
162,128
|
|
|
|
113,508
|
|
|
|
1,225
|
|
|
|
1,051,833
|
|
Restructuring
|
|
|
701
|
|
|
|
(201
|
)
|
|
|
(601
|
)
|
|
|
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
181,857
|
|
|
|
(6,836
|
)
|
|
|
265,433
|
|
|
|
(6,854
|
)
|
|
|
433,600
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
|
|
|
|
234,515
|
|
|
|
|
|
|
|
(234,515
|
)
|
|
|
|
|
Interest expense, net
|
|
|
1,605
|
|
|
|
8,820
|
|
|
|
6,855
|
|
|
|
|
|
|
|
17,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
180,252
|
|
|
|
218,859
|
|
|
|
258,578
|
|
|
|
(241,369
|
)
|
|
|
416,320
|
|
Income tax expense
|
|
|
|
|
|
|
83,291
|
|
|
|
10,536
|
|
|
|
|
|
|
|
93,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
180,252
|
|
|
$
|
135,568
|
|
|
$
|
248,042
|
|
|
$
|
(241,369
|
)
|
|
$
|
322,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-62
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating Statement of Income Year Ended July 2,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Divisional
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
4,926,503
|
|
|
$
|
753,516
|
|
|
$
|
2,273,019
|
|
|
$
|
(3,269,355
|
)
|
|
$
|
4,683,683
|
|
Cost of sales
|
|
|
3,917,590
|
|
|
|
482,605
|
|
|
|
1,917,714
|
|
|
|
(3,094,338
|
)
|
|
|
3,223,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,008,913
|
|
|
|
270,911
|
|
|
|
355,305
|
|
|
|
(175,017
|
)
|
|
|
1,460,112
|
|
Selling, general and administrative expenses
|
|
|
800,140
|
|
|
|
146,791
|
|
|
|
102,635
|
|
|
|
4,088
|
|
|
|
1,053,654
|
|
Restructuring
|
|
|
42,307
|
|
|
|
4,770
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
46,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
166,466
|
|
|
|
119,350
|
|
|
|
252,769
|
|
|
|
(179,105
|
)
|
|
|
359,480
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
|
|
|
|
224,243
|
|
|
|
|
|
|
|
(224,243
|
)
|
|
|
|
|
Interest expense, net
|
|
|
11,950
|
|
|
|
6,442
|
|
|
|
(4,428
|
)
|
|
|
|
|
|
|
13,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before (loss) income tax expense
|
|
|
154,516
|
|
|
|
337,151
|
|
|
|
257,197
|
|
|
|
(403,348
|
)
|
|
|
345,516
|
|
Income tax expense
|
|
|
|
|
|
|
115,816
|
|
|
|
11,191
|
|
|
|
|
|
|
|
127,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
154,516
|
|
|
$
|
221,335
|
|
|
$
|
246,006
|
|
|
$
|
(403,348
|
)
|
|
$
|
218,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
December 29, 2007
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
84,476
|
|
|
$
|
6,329
|
|
|
$
|
83,431
|
|
|
$
|
|
|
|
$
|
174,236
|
|
Trade accounts receivable
|
|
|
(13,135
|
)
|
|
|
4,389
|
|
|
|
586,327
|
|
|
|
(2,512
|
)
|
|
|
575,069
|
|
Inventories
|
|
|
827,312
|
|
|
|
47,443
|
|
|
|
281,224
|
|
|
|
(38,927
|
)
|
|
|
1,117,052
|
|
Deferred tax assets and other current assets
|
|
|
196,451
|
|
|
|
3,888
|
|
|
|
30,013
|
|
|
|
(2,375
|
)
|
|
|
227,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,095,104
|
|
|
|
62,049
|
|
|
|
980,995
|
|
|
|
(43,814
|
)
|
|
|
2,094,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
286,081
|
|
|
|
6,979
|
|
|
|
241,226
|
|
|
|
|
|
|
|
534,286
|
|
Trademarks and other identifiable intangibles, net
|
|
|
25,955
|
|
|
|
119,682
|
|
|
|
5,629
|
|
|
|
|
|
|
|
151,266
|
|
Goodwill
|
|
|
232,882
|
|
|
|
16,934
|
|
|
|
60,609
|
|
|
|
|
|
|
|
310,425
|
|
Investments in subsidiaries
|
|
|
424,746
|
|
|
|
585,168
|
|
|
|
|
|
|
|
(1,009,914
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
386,070
|
|
|
|
249,621
|
|
|
|
(232,117
|
)
|
|
|
(54,402
|
)
|
|
|
349,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,450,838
|
|
|
$
|
1,040,433
|
|
|
$
|
1,056,342
|
|
|
$
|
(1,108,130
|
)
|
|
$
|
3,439,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
127,887
|
|
|
$
|
4,344
|
|
|
$
|
71,288
|
|
|
$
|
85,647
|
|
|
$
|
289,166
|
|
Accrued liabilities
|
|
|
299,078
|
|
|
|
22,537
|
|
|
|
61,294
|
|
|
|
(2,670
|
)
|
|
|
380,239
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
19,577
|
|
|
|
|
|
|
|
19,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
426,965
|
|
|
|
26,881
|
|
|
|
152,159
|
|
|
|
82,977
|
|
|
|
688,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,615,250
|
|
|
|
450,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
2,315,250
|
|
Other noncurrent liabilities
|
|
|
119,719
|
|
|
|
1,773
|
|
|
|
19,854
|
|
|
|
5,001
|
|
|
|
146,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,161,934
|
|
|
|
478,654
|
|
|
|
422,013
|
|
|
|
87,978
|
|
|
|
3,150,579
|
|
Stockholders equity
|
|
|
288,904
|
|
|
|
561,779
|
|
|
|
634,329
|
|
|
|
(1,196,108
|
)
|
|
|
288,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,450,838
|
|
|
$
|
1,040,433
|
|
|
$
|
1,056,342
|
|
|
$
|
(1,108,130
|
)
|
|
$
|
3,439,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-63
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet December 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
60,960
|
|
|
$
|
(1,251
|
)
|
|
$
|
96,264
|
|
|
$
|
|
|
|
$
|
155,973
|
|
Trade accounts receivable
|
|
|
408,751
|
|
|
|
9,369
|
|
|
|
70,509
|
|
|
|
|
|
|
|
488,629
|
|
Inventories
|
|
|
959,274
|
|
|
|
115,413
|
|
|
|
239,548
|
|
|
|
(97,734
|
)
|
|
|
1,216,501
|
|
Deferred tax assets and other current assets
|
|
|
187,455
|
|
|
|
9,407
|
|
|
|
28,131
|
|
|
|
(14,916
|
)
|
|
|
210,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,616,440
|
|
|
|
132,938
|
|
|
|
434,452
|
|
|
|
(112,650
|
)
|
|
|
2,071,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
298,755
|
|
|
|
64,357
|
|
|
|
193,754
|
|
|
|
|
|
|
|
556,866
|
|
Trademarks and other identifiable intangibles, net
|
|
|
13,301
|
|
|
|
114,205
|
|
|
|
9,675
|
|
|
|
|
|
|
|
137,181
|
|
Goodwill
|
|
|
213,376
|
|
|
|
16,935
|
|
|
|
51,214
|
|
|
|
|
|
|
|
281,525
|
|
Investments in subsidiaries
|
|
|
279,203
|
|
|
|
587,628
|
|
|
|
|
|
|
|
(866,831
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
281,366
|
|
|
|
93,861
|
|
|
|
248,541
|
|
|
|
(234,900
|
)
|
|
|
388,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,702,441
|
|
|
$
|
1,009,924
|
|
|
$
|
937,636
|
|
|
$
|
(1,214,381
|
)
|
|
$
|
3,435,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
162,281
|
|
|
$
|
17,867
|
|
|
$
|
47,097
|
|
|
$
|
(4,704
|
)
|
|
$
|
222,541
|
|
Accrued liabilities
|
|
|
189,243
|
|
|
|
30,955
|
|
|
|
291,617
|
|
|
|
(146,814
|
)
|
|
|
365,001
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
14,264
|
|
|
|
|
|
|
|
14,264
|
|
Current portion of long-term debt
|
|
|
9,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
360,899
|
|
|
|
48,822
|
|
|
|
352,978
|
|
|
|
(151,518
|
)
|
|
|
611,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
2,034,000
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
2,484,000
|
|
Other noncurrent liabilities
|
|
|
238,271
|
|
|
|
16,838
|
|
|
|
12,254
|
|
|
|
3,805
|
|
|
|
271,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,633,170
|
|
|
|
515,660
|
|
|
|
365,232
|
|
|
|
(147,713
|
)
|
|
|
3,366,349
|
|
Stockholders equity
|
|
|
69,271
|
|
|
|
494,264
|
|
|
|
572,404
|
|
|
|
(1,066,668
|
)
|
|
|
69,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,702,441
|
|
|
$
|
1,009,924
|
|
|
$
|
937,636
|
|
|
$
|
(1,214,381
|
)
|
|
$
|
3,435,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-64
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
Year Ended December 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
961,029
|
|
|
$
|
138,162
|
|
|
$
|
(86,673
|
)
|
|
$
|
(653,478
|
)
|
|
$
|
359,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(43,206
|
)
|
|
|
(9,588
|
)
|
|
|
(38,832
|
)
|
|
|
|
|
|
|
(91,626
|
)
|
Acquisitions of businesses
|
|
|
|
|
|
|
|
|
|
|
(20,243
|
)
|
|
|
|
|
|
|
(20,243
|
)
|
Acquisition of trademark
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
Proceeds from sales of assets
|
|
|
9,180
|
|
|
|
5,396
|
|
|
|
1,997
|
|
|
|
|
|
|
|
16,573
|
|
Other
|
|
|
(1,962
|
)
|
|
|
566
|
|
|
|
(541
|
)
|
|
|
1,148
|
|
|
|
(789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(35,988
|
)
|
|
|
(8,626
|
)
|
|
|
(57,619
|
)
|
|
|
1,148
|
|
|
|
(101,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(1,170
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,196
|
)
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
66,413
|
|
|
|
|
|
|
|
66,413
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(88,970
|
)
|
|
|
|
|
|
|
(88,970
|
)
|
Cost of debt issuance
|
|
|
(3,135
|
)
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,266
|
)
|
Repayment of debt under credit facilities
|
|
|
(428,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(428,125
|
)
|
Borrowings on accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
250,000
|
|
Proceeds from stock options exercised
|
|
|
6,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,189
|
|
Stock repurchases
|
|
|
(44,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,473
|
)
|
Excess tax benefit from stock-based compensation
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
609
|
|
Other
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274
|
|
Decrease in bank overdraft
|
|
|
|
|
|
|
|
|
|
|
(834
|
)
|
|
|
|
|
|
|
(834
|
)
|
Net transactions with related entities
|
|
|
(431,694
|
)
|
|
|
(121,799
|
)
|
|
|
(98,837
|
)
|
|
|
652,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(901,525
|
)
|
|
|
(121,956
|
)
|
|
|
127,772
|
|
|
|
652,330
|
|
|
|
(243,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
3,687
|
|
|
|
|
|
|
|
3,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
23,516
|
|
|
|
7,580
|
|
|
|
(12,833
|
)
|
|
|
|
|
|
|
18,263
|
|
Cash and cash equivalents at beginning of year
|
|
|
60,960
|
|
|
|
(1,251
|
)
|
|
|
96,264
|
|
|
|
|
|
|
|
155,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
84,476
|
|
|
$
|
6,329
|
|
|
$
|
83,431
|
|
|
$
|
|
|
|
$
|
174,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-65
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
Six Months Ended December 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
275,160
|
|
|
$
|
(538,152
|
)
|
|
$
|
123,226
|
|
|
$
|
275,845
|
|
|
$
|
136,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(14,077
|
)
|
|
|
(2,527
|
)
|
|
|
(13,160
|
)
|
|
|
|
|
|
|
(29,764
|
)
|
Acquisition of business
|
|
|
|
|
|
|
|
|
|
|
(6,666
|
)
|
|
|
|
|
|
|
(6,666
|
)
|
Proceeds from sales of assets
|
|
|
1,269
|
|
|
|
4,123
|
|
|
|
7,557
|
|
|
|
|
|
|
|
12,949
|
|
Other
|
|
|
132,988
|
|
|
|
(114,692
|
)
|
|
|
(16,760
|
)
|
|
|
(1,086
|
)
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
120,180
|
|
|
|
(113,096
|
)
|
|
|
(29,029
|
)
|
|
|
(1,086
|
)
|
|
|
(23,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(3,046
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,088
|
)
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
10,741
|
|
|
|
|
|
|
|
10,741
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(3,508
|
)
|
|
|
|
|
|
|
(3,508
|
)
|
Issuance of debt under credit facilities
|
|
|
2,150,000
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
2,600,000
|
|
Cost of debt issuance
|
|
|
(41,958
|
)
|
|
|
(8,290
|
)
|
|
|
|
|
|
|
|
|
|
|
(50,248
|
)
|
Payments to Sara Lee Corporation
|
|
|
(1,974,606
|
)
|
|
|
(450,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,424,606
|
)
|
Repayment of debt under credit facilities
|
|
|
(106,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,625
|
)
|
Issuance of Floating Rate Senior Notes
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
Repayment of bridge loan facility
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500,000
|
)
|
Proceeds from stock options exercised
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
Increase (decrease) in bank overdraft
|
|
|
|
|
|
|
(275,385
|
)
|
|
|
834
|
|
|
|
|
|
|
|
(274,551
|
)
|
Net transactions with parent companies
|
|
|
(771,890
|
)
|
|
|
1,523,794
|
|
|
|
(283,890
|
)
|
|
|
(274,759
|
)
|
|
|
193,255
|
|
Net transactions with related entities
|
|
|
152,551
|
|
|
|
(321,841
|
)
|
|
|
(26,091
|
)
|
|
|
|
|
|
|
(195,381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(595,435
|
)
|
|
|
918,236
|
|
|
|
(301,914
|
)
|
|
|
(274,759
|
)
|
|
|
(253,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
(1,455
|
)
|
|
|
|
|
|
|
(1,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(200,095
|
)
|
|
|
266,988
|
|
|
|
(209,172
|
)
|
|
|
|
|
|
|
(142,279
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
261,055
|
|
|
|
(268,239
|
)
|
|
|
305,436
|
|
|
|
|
|
|
|
298,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
60,960
|
|
|
$
|
(1,251
|
)
|
|
$
|
96,264
|
|
|
$
|
|
|
|
$
|
155,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-66
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
Year Ended July 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Divisional
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
1,014,001
|
|
|
$
|
(312,762
|
)
|
|
$
|
427,471
|
|
|
$
|
(618,089
|
)
|
|
$
|
510,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(60,878
|
)
|
|
|
(5,900
|
)
|
|
|
(43,301
|
)
|
|
|
|
|
|
|
(110,079
|
)
|
Acquisition of business
|
|
|
|
|
|
|
(2,436
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,436
|
)
|
Proceeds from sales of assets
|
|
|
4,731
|
|
|
|
84
|
|
|
|
705
|
|
|
|
|
|
|
|
5,520
|
|
Other
|
|
|
(4,433
|
)
|
|
|
(4,636
|
)
|
|
|
1,741
|
|
|
|
3,662
|
|
|
|
(3,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(60,580
|
)
|
|
|
(12,888
|
)
|
|
|
(40,855
|
)
|
|
|
3,662
|
|
|
|
(110,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(5,227
|
)
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,542
|
)
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
7,984
|
|
|
|
|
|
|
|
7,984
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(93,073
|
)
|
|
|
|
|
|
|
(93,073
|
)
|
Increase in bank overdraft
|
|
|
|
|
|
|
275,385
|
|
|
|
|
|
|
|
|
|
|
|
275,385
|
|
Borrowings (repayments) on notes payable to related entities, net
|
|
|
119,012
|
|
|
|
(1,205
|
)
|
|
|
26,091
|
|
|
|
|
|
|
|
143,898
|
|
Net transactions with parent companies
|
|
|
(537,505
|
)
|
|
|
(1,192,887
|
)
|
|
|
(135,997
|
)
|
|
|
614,427
|
|
|
|
(1,251,962
|
)
|
Net transactions with related entities
|
|
|
(259,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(259,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(682,746
|
)
|
|
|
(919,022
|
)
|
|
|
(194,995
|
)
|
|
|
614,427
|
|
|
|
(1,182,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
(171
|
)
|
|
|
|
|
|
|
(171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
270,675
|
|
|
|
(1,244,672
|
)
|
|
|
191,450
|
|
|
|
|
|
|
|
(782,547
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
(9,620
|
)
|
|
|
976,433
|
|
|
|
113,986
|
|
|
|
|
|
|
|
1,080,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
261,055
|
|
|
$
|
(268,239
|
)
|
|
$
|
305,436
|
|
|
$
|
|
|
|
$
|
298,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-67
HANESBRANDS
Notes to Consolidated Financial
Statements (Continued)
Year ended December 29, 2007, six months ended
December 30, 2006
and years ended July 1, 2006 and July 2, 2005
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
Year Ended July 2, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Divisional
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
213,706
|
|
|
$
|
199,883
|
|
|
$
|
260,470
|
|
|
$
|
(167,188
|
)
|
|
$
|
506,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(44,044
|
)
|
|
|
(4,048
|
)
|
|
|
(19,043
|
)
|
|
|
|
|
|
|
(67,135
|
)
|
Acquisition of business
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
|
|
|
|
|
|
(1,700
|
)
|
Proceeds from sales of assets
|
|
|
8,358
|
|
|
|
169
|
|
|
|
432
|
|
|
|
|
|
|
|
8,959
|
|
Other
|
|
|
10,733
|
|
|
|
2,033
|
|
|
|
(12,970
|
)
|
|
|
|
|
|
|
(204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(24,953
|
)
|
|
|
(1,846
|
)
|
|
|
(33,281
|
)
|
|
|
|
|
|
|
(60,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(5,384
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,442
|
)
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
88,849
|
|
|
|
|
|
|
|
88,849
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(5,546
|
)
|
|
|
|
|
|
|
(5,546
|
)
|
Repayments on notes payable to related entities, net
|
|
|
|
|
|
|
(113,341
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
(113,359
|
)
|
Net transactions with parent companies
|
|
|
(53,191
|
)
|
|
|
265,818
|
|
|
|
(375,316
|
)
|
|
|
167,188
|
|
|
|
4,499
|
|
Net transactions with related entities
|
|
|
(10,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(68,953
|
)
|
|
|
152,419
|
|
|
|
(292,031
|
)
|
|
|
167,188
|
|
|
|
(41,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
1,231
|
|
|
|
|
|
|
|
1,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
119,800
|
|
|
|
350,456
|
|
|
|
(63,611
|
)
|
|
|
|
|
|
|
406,645
|
|
Cash and cash equivalents at beginning of year
|
|
|
(129,420
|
)
|
|
|
625,977
|
|
|
|
177,597
|
|
|
|
|
|
|
|
674,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
(9,620
|
)
|
|
$
|
976,433
|
|
|
$
|
113,986
|
|
|
$
|
|
|
|
$
|
1,080,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-68
Hanesbrands
Valuation and Qualifying Accounts
Year ended December 29, 2007, six months ended December
30, 2006
and years ended July 1, 2006 and July 2, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
|
|
|
|
|
|
at End
|
|
Description
|
|
of Year
|
|
|
Expenses
|
|
|
Deductions(1)
|
|
|
Other(2)
|
|
|
of Year
|
|
|
|
(amounts in thousands, except per share data)
|
|
|
Allowance for trade accounts receivable year-ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 29, 2007
|
|
$
|
27,709
|
|
|
$
|
45,604
|
|
|
$
|
(42,177
|
)
|
|
$
|
506
|
|
|
$
|
31,642
|
|
Six months ended December 30, 2006
|
|
|
28,817
|
|
|
|
19,508
|
|
|
|
(20,530
|
)
|
|
|
(86
|
)
|
|
|
27,709
|
|
Year ended July 1, 2006
|
|
|
27,676
|
|
|
|
56,883
|
|
|
|
(56,128
|
)
|
|
|
386
|
|
|
|
28,817
|
|
Year ended July 2, 2005
|
|
|
34,237
|
|
|
|
68,752
|
|
|
|
(76,369
|
)
|
|
|
1,056
|
|
|
|
27,676
|
|
|
|
|
(1) |
|
Represents accounts receivable write-offs. |
|
(2) |
|
Represents primarily currency translation adjustments. |
F-69